The Demat full form stands for a Dematerialised Account. Demat is a form of an online portfolio that holds a customer’s shares and other securities. It has negated the necessity of holding and trading physical share certificates.
A Demat account is used to hold shares and securities in an electronic (dematerialised) format. These accounts can also be used to create a portfolio of one’s bonds, ETFs, mutual funds, and similar stock market assets.
Demat trading was first introduced in India in 1996 for NSE transactions. As per SEBI regulations, all shares and debentures of listed companies have to be dematerialised in order to carry out transactions in any stock exchange from 31st March 2019.
Here are some of the key features to understand demat account meaning better-
It provides quick & easy access to all your investments and statements through net banking.
The depository participant (DP) helps to convert all your physical certificates to electronic form and vice versa.
It uses quick & easy methods to receive dividends, interest or refunds. It is all auto-credited in the account. It also uses Electronic Clearing Service (ECS) for updating investors’ accounts with stock splits, bonus issues, rights, public issues, etc.
Transfer of shares has become much easier and time-saving with the use of a demat account.
Demat Accounts have made it simpler, faster and more convenient to get money by selling shares.
After opening a demat account, one can also avail of a loan against the securities held in your account.
One can freeze a certain amount or type of their demat account securities for a certain period of time. This eventually will stop the transfer of money from any debit or credit card into your account.
In general, Demat Accounts are used to hold the purchased shares by an individual-
A significant thing to note here is that the buyer and seller may hold a demat account with DPs associated with different depositories.
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You may also want to know How to Open a Demat Account |
An investor can opt to open demat account of any of the following types-
All residing Indian citizens are eligible to open regular Demat accounts.
Non-resident Indians can open Demat accounts of repatriable types. One can transfer money from overseas through such accounts, provided it is linked to an NRE bank account.
Non-repatriable accounts are also for NRIs, however, these accounts cannot be used to transfer funds from abroad. An individual has to link an NRO bank account to own and operate this type of Demat account.
Customers holding Demat accounts need to open a trading account to buy or sell securities from the stock market. While respective Depositories and Depository Participants regulate Demat accounts, a trading account follows the regulations mandated by SEBI.
Investors who opt to open Demat account can enjoy several benefits. Here are some of the most common benefits.
Investors are also issued a DP ID, or Depository Participant ID, by their preferred broking firm or other financial institutions. DP ID forms a part of one’s account number, as this ID denotes the first eight-digit of the account number.
Both depository and depository participants use this data when an investor converts physical shares to Demat, transfers shares from one Demat account to another, or transfers money from a Demat account to a bank account.
Although any investor can open a free Demat account, there are certain charges that are levied on that account to ensure its smooth operations. Each brokerage firm (including banks) comes with its unique brokerage charges. Here are some of those–
Almost every firm levies a fee as an annual maintenance charge for Demat account. Depositories follow specific guidelines to calculate the fee applicable for each investor.
SEBI has implanted a revised rate for Basic Services Demat Account, or BSDA, from 1st June 2019. According to the revised guidelines, no annual maintenance charge will be applicable for debt securities of up to Rs.1 lakh, while a maximum of Rs.100 can be levied on holdings of Rs.1 lakh to Rs.2 lakh.
Depository partners charge a custodian fee as a one-time or annual basis. The sum is paid directly to the depository (NDSL or CDSL) by the company.
Such expenses are levied as a percentage of the total value of shares purchased or sold to cover all digitisation or physical print costs of securities.
Other than the above-mentioned fees, an investor is also liable to pay fees like credit charges, applicable taxes and CESS, rejected instruction charges, etc.
Demat accounts play a crucial role in stock market investments, as it is one of the most common methods of investing in the stock market. However, recently, several online platforms provide the benefit of online trading without such accounts.