Why Demat Account Is Required?

A Demat Account is the most essential and crucial requirement when you venture into trading or investing in stocks and securities in the Indian equity markets. A Demat account acts as a depository for the equity. In other words, your shares are held in electronic or digital form in the Demat Account. This article will explain in detail why Demat Account is required for trading and investment purposes.

What is a Demat Account

A Demat Account is an abbreviation for “dematerialized account.”) It is an electronic holding account for financial securities (equity or debt). Two Depository organizations in India that manage Demat accounts are –

1. National Securities Depository Limited (NSDL)
2. Central Depository Services Limited (CDSL)

The concept is similar to bank accounts which are used to hold your money. Following are the entities that can be held in a Demat Account –

• Stocks
• Mutual Funds
• Bonds
• Exchange-Traded Funds (ETFs)
• Other Dematerialized Securities

Once you open a Demat Account online and make a stock purchase order, the shares are credited to your Demat Account. Similarly, when you opt to sell your shares, your Demat account is debited with the sold shares. This eliminates the need for physical transactions of share certificates when trading.

Do you need a Demat Account for Trading?

The Securities and Exchange Board of India (SEBI) made the Demat account a legal requirement in 1996. So, one thing is clear: If you want to trade in stock markets, you must have a Demat Account, as this is a SEBI mandate. This order was approved by the Indian Parliament, which passed a bill mandating that all securities market trading be done in a dematerialized format.

There is, however, one exception. For those traders who are into Intraday Trading, a Demat account is not necessary as no holding or delivery of shares is really carried out in Intraday Trading. Apart from that, trading in the stock market necessitates the use of a Demat Account.

Now it is easy to open a Free AMC Demat Account with choice following our hassle-free online process. We offer a Free AMC Demat Account for one year to facilitate the investors with all the necessary benefits of having a Demat Account for a smooth and hassle-free trading/investment experience.

Why do investors need a Demat Account?

Why did SEBI feel the need to enforce that if you want to trade, you’ll need to open a Demat Account? What were the factors that led to the Indian Parliament passing a bill requiring Demat Accounts?

The simple answer is that recognizing the benefits of a Demat Account facility and the fact that Demat Accounts have completely transformed the trading experience is the best way to go. We at Choice also strive to spread awareness amongst our investors to make them acquainted with the benefits of our free AMC Demat Account. Here are some of the most significant advantages of our free AMC Demat Accountswhich will make it clear why Demat Accounts are necessary:

1. Security
   • Demat Account has greatly increased the sense of security among shareholders because the hazards of theft or misplacing physical shares have been reduced. Demat Accounts easily overcame the constraints of physical shares.
2. Accessibility
   • The fact that a Demat Account allows a trader to trade from anywhere, at any time, without the need to contact a middleman is a significant development. All a trader has to do nowadays is use a device like a PC or a smartphone to trade as needed.
3. Multiple Points of Entry
   • A Demat Account run electronically, which means that users can access it from a variety of devices –
     • Mobile
     • Tablet
     • PC
     • Laptop
4. Cost-Effective
   • Unnecessary Documentation and Stamp Tax are added to physical share certificates, increasing prices. All of this is eliminated with a Demat account, and you can open a Demat Account in no time.
5. Ease of Transfer
   • Because no human intervention is required in the transfer of shares from one shareholder to another, this has resulted in faster delivery and a faster overall trading experience.
6. Global Market Access
   • Foreign investors have been permitted to trade in the Indian market through Demat Accounts, which serves to enhance the general economy as foreign investments push assets from overseas.
7. Loans Against Stocks
   • Demat Account holders have the option of taking out loans against their securities, also known as Margin Trading or Margin Funding.
8. The advantage to the Investors
   • The depository system lowers the hazards of physical certificate storage, such as loss, theft, mutilation, forgery, and so on. It ensures transfer settlements and minimizes the time it takes for shares to be registered. It allows for more frequent connections with investors.
   • It aids in the avoidance of delivery issues such as signature discrepancies, etc. It ensures that payments for stock sales are made more quickly. On the transfer of shares, there is no stamp duty. It increases the acceptability of securities as well as their liquidity.
9. The advantage for the Companies
   • Because of cheaper printing and distribution expenses, the depository system aids in lowering the cost of new issues. It improves the efficiency of registrars, transfer agents, and a company’s secretarial staff. It gives shareholders and investors improved communication and timely service.
10. The Advantage for Brokers
    • It lowers the chances of a late settlement. Because of the increased trading volume, it promises a higher profit. It removes the possibility of falsification or faulty delivery. It improves the overall trading and profitability of the company. It boosts their investors’ confidence.
    • Furthermore, you cannot apply for an IPO without a Demat Account, because when allotted shares begin to reflect, you will get your holdings in your Demat Account. So, all you have to do now is follow the process and open a Demat Account online with us, and you’ll be able to utilize it to begin trading in a day or two.

Conclusion

Except in the case of F&O Intraday trading, all types of trading require a Demat Account. If you want to make a lot of money from IPO investments, you’ll need a Demat Account. And just because SEBI has made it compulsory doesn’t mean the Demat Account facility is without merit.

Rather, the actions of these authorities show that the Demat Account is beneficial not only to traders but also to those involved in the management of shares, such as Depository bodies and stockbrokers.

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source https://nrinews24x7.com/why-demat-account-is-required/

March 24, 2022