What is a Demat Account? Meaning, Types & Benefits

A demat account is one of the prerequisites for investing in stock markets. Demat or dematerialisation account holds your securities in an electronic format, making it easy to invest in a range of securities. Read on to know more about the share market demat account and its various aspects.

What is a Demat Account and What is the Use of It?

A demat account is akin to a bank account. Just like you keep money in your bank account, a demat account keeps your securities, including stocks, exchange-traded funds, bonds, etc., in a dematerialised format. Dematerialisation refers to the process of conversion of physical shares into an electronic format. 

SEBI has made it mandatory for individuals looking to invest in the Indian securities market to open demat accounts. Demat accounts made their debut in 1996. While earlier, opening a demat account was a time-consuming process, digitalisation has made it seamless. 

How to Open a Demat Account?

Today, you can open an online demat account in a few minutes. Online demat account opening spells convenience and requires you to furnish the basic documents related to your identity and address. Here’s how you can open a demat account:

• Select a depository participant with whom you want to open an account
• Fill up the online account opening form
• Add your bank details
• Upload documents related to your identity and address
• Perform in-person verification by recording a short video of yourself
• E-sign digitally using your Aadhar-linked mobile number
• Submit your form 

If everything is in order, opening a demat account usually takes 2 to 3 working days. Once you receive them, check your demat account details for discrepancies. You receive your demat login credentials via email, and a hard copy is also sent to your registered address after a few days.

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Types of Demat Account

There are three types of demat accounts. These are:

• Regular Demat Account

Regular demat accounts are for Indian nationals. If you are an Indian citizen looking forward to investing in stock markets, you need to open a regular demat account.

• Repatriable Demat Account

This type of demat account is for non-resident Indians (NRIs) looking to invest in Indian stock markets. Through this demat account, NRIs can transfer funds to various foreign countries. However, a repatriable demat account must be linked with a non-resident (External) bank account. If you are an NRI and want to use funds while living abroad, you can use this demat account to do so.

• Non-repatriable Demat Account

A non-repatriable demat account is also for NRIs. However, there’s a slight difference. Unlike a repatriable demat account from which one can transfer funds, such transfers are not allowed in the cases of non-repatriable demat accounts.

Benefits of Demat Account Investment

Having a demat account spells several benefits. Some of the key benefits you get are:

• Secured Storage

Before demat accounts arrived on the scene, shares were issued in physical format. This made them susceptible to theft, loss, tampering, and forgery. However, the introduction of demat accounts ensures the safety and security of your securities. Also, as all securities are held in one place, you can easily access them anytime needed. 

• Makes Trading Convenient

This is another major advantage. You can buy and sell securities quickly as per your requirements. This makes trading convenient and also allows you to capture market opportunities. At the same time, a demat account facilitates the seamless transfer of securities. Earlier, it would take months to transfer shares. However, demat accounts have expedited the process manifold while bringing down costs.

• Easy Tracking

A demat account helps you easily monitor all your transactions. You get a complete overview of the securities bought and sold, gains made, losses suffered, etc. This information helps you make prudent investment decisions and also calculate taxes.

• Facilitates Receiving Corporate Gains

Companies often announce dividends, stock splits, interests, etc. A demat account facilitates receiving such gains. All of these get auto-credited into your account. This enhances overall trading experience.

• One-stop Destination to Invest in Multiple Financial Instruments

While a demat account is primarily used to store shares electronically, you can use them to invest in various financial instruments, including exchange-traded funds, bonds, etc. In a nutshell, you can use your demat account to diversify your investments per your goals and risk tolerance. 

• Obtain Loan Against Securities

If you require a loan for any need, you can use the securities you have in your demat account as a collateral to obtain the necessary funds. 

Conclusion

Irrespective of whether you indulge in options trading, intraday trading or regular trading, it’s imperative to have a demat account. You also need a trading account. While a demat account helps you store securities electronically, a trading account lets you buy and sell securities. Review various depository participants on fees and quality of services before opening demat account and trading account.

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Frequently Asked Questions

1. What is Dematerialisation?

Dematerialisation is the process through which you convert physical shares into an electronic format. If you have any physical shares, you need to dematerialise them mandatorily.

1. Do We Need a Demat Account for Mutual Funds?

While you don’t need a demat account for mutual fund investment, you need a demat account to invest in exchange-traded funds.

1. How Much Do You Pay for a Demat Account?

Charges for opening a demat account vary across brokers. Apart from account opening fee, you also need to pay various other charges such as annual maintenance charges, pledging charges, unpledging charges, etc.

1. How to Know All the Information About Holding a Demat Account?

You can visit the official website of the NSDL or CDSL or your brokerage firm to get all information about holding a demat account. You can also consult customer care executives of brokerage firms for personalised assistance.