A demat account is a very useful tool for anybody who wants to trade in the stock market. It is a mandatory tool for traders. Yet it can be a little confusing for an amateur to start using a demat account. Here we break down the technicalities and help you understand how a demat account works.
What is a Demat Account?
A demat account is an account which holds all your securities in the digital form. It is similar to a savings bank account. If you want to buy or sell anything the money gets debited or credit from your bank account. In the same way, if you have bought any shares then they are held in the demat account. If you want to sell them then they get deducted from your demat account. A demat account is where the debit and credit of your securities takes place.
How to open a Demat Account?
To open a demat account you need to do the following:
- Choose a good broker who provides you all the facilities.
- Choose a Depository Participant registered with SEBI.
- Fill the account opening form and submit the required documents.
- Do the in-person verification.
- Once the verification, you receive your account number and Id.
How to Use a Demat Account?
It is a very simple process to operate a demat account. When you do the trade and buy the shares, your brokerage firm has the responsibility to credit the shares in your demat account. If the trading is done online then you can easily access the credit of your shares in the statement of holdings. The shares are credited by the broker on a T+2 day basis. T+2 means the trading day+2 days after the trade.
When you sell the shares all you need to do is give the broker delivery instruction note. In this note, you have to fill the details of the stock sold. Once this process is done, your demat account gets debited with the shares and you receive the money for the shares sold.
Benefits of Owning A Demat Account
A demat can be useful in a number of ways. Here are some benefits.
- There is no need to handle a physical copy of shares as they get digitized when in a demat account.
- No more risk of tampering, theft or forget of the certificates.
- Reduced to no paperwork.
- Lower transaction settlement time
- Easy and quick transfer of securities.
- The issue of odd lots is completely removed. You can buy and sell as many shares as you want.
- No stamp duty.
- No need of any transfer deed.
A demat account is what make your stock trading easier. But along with this you also need a trading account from where you can do the transaction. If you have a brokerage firm then you do not have to manually operate the account. The firm takes care of it.