Approximately, 1.42 crore Demat accounts were opened in FY 21. That’s double the accounts opened in FY 20. Total Demat accounts in India are around 5.2 crore, so when we compare it with the population of India, it’s a really long way to go.
Covid has rudely awakened people to the needs of financial planning and an alternative source of income. The most readily available stream is smart investments via capital markets, and for that a Demat account is indispensable, so let’s start with it
What’s a Demat Account?
A Demat Account is the capital markets equivalent of the savings account. Demat is short for ‘Dematerialized’ it’s a purpose built account to trade and invest in stocks, bonds etc. Demat stores securities in electronic form and makes it faster, easier and smoother to invest. Technology has played a big role creating the modern Demat Account.
Schemes with Demat Account
Since it’s the first basic need, most companies usually offer the following,
- Free Demat Account Opening
- Demat Account with Zero AMC (Annual Maintenance Contracts)
Now, we need a Demat to trade and invest, so what are the aims and objectives of a Demat Account?
Aims and Objectives of Demat Account
Lowers Risks
With everything in electronic format in a Demat, there is no risk of loss, forgery, theft, misplacement or fraud. These were a regular affair when everything was on paper, but due to digitization and subsequent dematerialization, managing stock and investments is easier than ever.
Process is Simplified
The Demat account is useful to streamline the entire electronic chain. Transfer of stocks happens quickly which used to take weeks before. Any updates of details like change of address is also faster.
Convenient and Easy
Progress should make things convenient, this can definitely be seen with Demat and investing in general. All time-consuming procedures have been done away with like stock market stamps, restriction on selling shares in large quantities etc. Demats are simpler and quicker now.
Reduction in Transfer Time
As of today stock transactions have become virtually paperless or rather ‘paperfree’ due to the digitization, this saves time and costs.
Advantages of opening a Demat Account
Better than a physical certificate
It’s a lot safer to have your securities in digital format than owning actual certificates, this eliminates any instances of loss, fraud or even a bad trade.
Can sell 1 stock
In the old trading days of paper transactions; shareholders couldn’t sell one share as it was too cumbersome. The modern version of Demat changed that.
Flexibility
Research, trade and invest from anywhere in the world.
All-in-one for securities
Stocks, bonds, mutual funds, ETFs, debt instruments among other financial products can be held in the Demat account.
Cost Effective
All the expenses earlier associated with paper are reduced like no more physical certificates and even excessive stamp duty and other miscellaneous charges. This reduces the overall transaction costs and trading costs can simply be arrived at by using brokerage calculators.
Summary
Trading and investing needs a Demat account. The constant innovation and the need to make things more efficient have led to Depository Participants making the processes of opening Demat accounts easier.
The idea of Demats enabling investors to buy, sell and transfer securities more smoothly, with a better experience will always be the basic goal. From the days of loss, fraud, forgery and other shortcomings, the Demat account sure has come a long way.
