How to Use a Demat Account?

A Demat account is essential to hold all your shares and securities in a dematerialised format. This eliminates the need to maintain physical share certificates and other securities for investing and trading.

For instance, you can think of it as your bank account, which holds your savings and reflects your transactions to keep track of your credits and debits. Instead of money, your Demat account stores your securities and reflects the debit or credit of securities digitally in one place.

What is the Significance of a Demat Account?

You must know the significance of a Demat account before learning how to use a Demat account. Here is a breakdown of its significant features for investments:

1. Easy Storage of Securities

Unlike earlier days, you do not need to carry or maintain your security certificates in a paper-based format. A Demat account stores all your securities digitally, allowing you easy storage and access options.

2. Provides a Consolidated View

When you create a Demat account to invest or trade in securities, you can store various securities, such as stocks, debentures, bonds, mutual funds, etc. This gives you a consolidated view of your portfolio.

3. Helps to Buy and Sell

Your Demat account is linked with your trading account. With a trading account, you can buy and sell shares and other securities, and the Demat account records these transactions.

How to Use a Demat Account?

To invest or trade in the securities market in India, you need a Demat account, and the following section shows how to use it:

Step 1: Choose a Depository Participant (DP) registered with the central depositories, such as NSDL, CDSL and SEBI.

Step 2: Provide the ID and address verification documents, such as your PAN, Aadhaar and digital signature. The DP will review and approve your application and provide you with a client and DP ID.

Step 3: You must link your newly opened Demat account with your trading account to begin investments or trades. Most brokers open a trading account when opening a Demat account.

Step 4: You can now purchase or sell securities, like bonds, shares, mutual funds, ETFs, etc., as per your preference.

Can I Trade Shares Without a Demat Account?

As per the SEBI guidelines, you cannot trade in the Indian securities market without having a Demat account. For example, if you are looking to invest and trade in equities, you must have a Demat account, since it involves holding your shares digitally in the Demat account.

Moreover, if you are interested in intraday trading, you need a Demat account to have the deliveries of trades. Therefore, a Demat account is mandatory for a seamless investment and trading experience.

What are the Main Benefits of Having a Demat Account?

Now that you know how to use a Demat account, take a look at how it benefits you as an investor in the modern days:

1. Fosters Security

A Demat account eliminates the security risks of physical certificates, which include theft, loss or damage. It eliminates forgery risks that might come with physical certificates.

2. Saves Time

Demat account creation is easy, compared to paper-based trading. You can open one within a few hours. It eliminates hefty paperwork and saves you valuable time.

3. Remote Access

A Demat account allows you remote access to the securities you buy and sell in the market. Therefore, you do not need to physically visit a broker to trade securities.

4. Minimal Charges

Most brokers or DPs do not charge a Demat account opening fee and provide a trading account. You do not need to pay stamp duties, and AMCs are also nominal.

Important Terms to Know When Using a Demat Account

Now that you have the answer to how can I operate my Demat account, you should be aware of some important Demat terms to stay informed:

1. Dematerialisation and Rematerialisation

As an investor, you can convert your physical securities into a dematerialised form, which is essential. Rematerialisation is the opposite of the former and is a less common practice.

2. Demat Debit and Pledge Instruction or DDPI

A DDPI is a request by an investor or Demat holder to debit their securities stored in the account for many reasons. The reasons might be to transfer securities to another Demat, pledging securities as collateral against loans, selling them, etc.

3. Power of Attorney

When you appoint an individual as a Power of Attorney in your Demat account, they can manage your account on your behalf.

4. Central Depository and DPs

Central depositories are responsible for maintaining the dematerialised securities held in a Demat account. NSDL and CDSL are two central depositories in India. A DP is a brokerage firm, bank or other financial institution that provides a trading platform.

What is a Share Allocation?

To put it simply, a share allocation refers to linking your Demat account with the trading account. This allows you to monitor the updated holdings under your name. It is a straightforward process, which you can do in minutes.

When you complete a market or off-market purchase, you can allocate the credited shares using the option called “Allocate Share”.

Depending on your purchasing pattern, you can allocate shares as often as you complete a security purchase.

Conclusion

Learning how to use a Demat account is crucial to knowing the ins and outs of a Demat account. SEBI mandates that to hold your securities in a Demat account and with a reliable DP, you can open an account and start trading. It has security benefits, ease of access, minimal charges and more, enhancing the investment experience.

FAQs

1. How does a Demat account work?

When purchasing or selling securities in the Indian market, you need a Demat account to hold the shares. This means all your transactions in the market are reflected on your Demat account and give you a consolidated portfolio view.

2. Can I keep money in a Demat account?

Although a Demat account matches the concept of a bank account, instead of money, you keep your securities, like bonds, ETFs, mutual funds, etc., in a Demat account.

3. What are the rules of a Demat account?

There are a few compliances you must follow when using a Demat account. They include KYC norms, proper documentation, regulatory disclosures, etc. Furthermore, you cannot open multiple Demats with the same broker, but you can open more accounts with different DPs.