What is a Demat Account?

A Demat account acts as a platform to hold shares and securities electronically. As an investor, you can manage securities and invest in a diversified portfolio of bonds, mutual funds, and exchange-traded funds (ETFs). In this blog, we will provide a comprehensive guide on what is Demat account, the benefits and functions, and the overall process of dematerialisation.

 

Understanding the Meaning of a Demat Account

Understanding the Demat account meaning is important to invest in a diversified portfolio and perform share transfers in a more simplified manner. It is an online portfolio where you can store your shares and other securities electronically.

In India, Demat account trading was first introduced in 1996 to reduce the risk of forgery, damage, and loss of physical securities. The Securities and Exchange Board of India (SEBI) has made regulations to dematerialise all the shares and debentures of the companies for stock market transactions from 31st March 2019.

 

Features of a Demat Account

As an investor, you can hold securities in electronic format with the help of a Demat account. Holding securities electronically allows you to avoid the time-consuming process of monitoring physical security. Here are the essential features of a Demat account:

• Facility to Nominate: The Demat account provides a nomination facility that helps the appointed nominee acquire securities in the absence or death of the investor.
• Electronic Settlement: You do not have to use any paper certificates in the dematerialisation of securities. Using demat accounts provides you with security and saves you from manual hassles.
• Smooth Transaction: A Demat account also allows you to use an electronic Delivery Instruction Slip (e-DIS). This slip keeps all of the information necessary for a smooth transaction of securities.
• Loan Availability: You can also apply for a loan by pledging your securities. Most online brokers allow investors to use this feature. Demat accounts of most of the online brokers have this feature.
• Utilisation of Multiple Assets: Using a Demat account enables you to hold a variety of instruments apart from stocks. You can hold mutual funds, ETFs, and even government securities.

 

How Does a Demat Account Work?

Now that you know the features, understanding the function of a Demat account is also crucial. The procedure for using the electronic format is almost the same as the physical format for holding securities.

You must start trading by placing a buy order using your online trading account. Your trading and Demat account must be the same to place the order. The security exchange will process your order once you place it. The securities will be transferred from the seller’s Demat account to your account.

However, you must note that a buyer and a seller can hold a dematerialised account with the help of depository participants (DP) that are associated with a variety of depositories.

 

Importance of a Demat Account

You should use a Demat account to hold shares and securities more conveniently. Here are the reasons why you should use a Demat account:

• Since it is an electronic format of holding securities, you keep your securities safe by eliminating forgery, loss, and theft.
• You can also transfer securities while staying at home or work. You can place a buy or sell order anytime using your smartphone.
• A Demat account will also allow you to receive the securities within one business day, since stock exchanges operate on a T+1 or T+2 trading settlement cycle.
• The dematerialised format of holding securities also helps track your holdings on the same platform.

 

Benefits of a Demat Account

Knowing the Demat meaning is important for buying and selling shares electronically. These are some of the common benefits of using a Demat account:

• Storage Benefits: Using the dematerialised format allows you to store securities as much as you can. You may buy large volumes of shares, which can be problematic when you use a physical form of shares.
• Quick Transactions: The securities will be automatically debited or credited from your Demat account after the transaction. The lack of paperwork completes the settlement process in T+1 or T+2 days.
• Ease in Portfolio Management: You can also track the performance of the securities, monitor, and review them anywhere using a Demat account.
• Lesser Manual Intervention: A Demat account also eases the deposit of dividends, stock splits, bonus shares, and other investments in your Demat account.

 

Types of Demat Account

Since you are familiar with what is Demat and its function, you must also know its different types. Depository participants offer three major types of Demat accounts:

• Regular Demat Account: The regular Demat account is used by Indian residents. These are usually beneficial for investment in multiple securities.
• Repatriable Demat Account: A repatriable Demat account is good for Non-Residents of India (NRIs) looking forward to investing in the securities market of India from any part of the world.
• Non-Repatriable Demat Account: This type of Demat account is also dedicated to NRIs, but they cannot transfer funds abroad. However, NRIs must link their non-repatriable Demat account with a Non-Resident Ordinary (NRO) bank account.

 

Dematerialisation Process

Dematerialisation is a basic procedure of converting physical investment securities like shares and bonds into a digital format and storing them in a Demat account. Once your Demat account is activated, you can convert the paper certificates into digital form. You can do this by submitting your physical securities with a Dematerialisation Request Form (DRF).

 

How to Open a Demat Account?

The SEBI has mandated that every investor must open a Demat account to trade in the Indian stock market. Here are a few steps you can follow to open a free Demat account through PL Capital Group – Prabhudas Lilladher:

• Step 1: Download the PL Capital application from any app store.
• Step 2: Go to the ‘Account’ section and click the ‘Profile’ option.
• Step 3: Provide your mobile number and email ID in the required field. Enter the two OTPs that you have received on your mobile number and email for verification.
• Step 4: Now, enter your PAN details, including name and number, for instant e-KYC.
• Step 5: Verify your Aadhaar number through OTP verification sent to your Aadhaar-linked mobile number.
• Step 6: Allow access to your Digilocker, and you will see that your Demat account will be created.

 

Documents Required for Opening a Demat Account

To open a Demat account with an online broker, you must submit some essential documents for verification. When opening a Demat account with PL, you must submit minimal documents. Here are the documents you need to submit:

• PAN Card
• Aadhaar Card
• Bank Details
• Digital Signature

 

What are the Details Included in a Demat Account?

These are the details included in a Demat account:

• Demat Account Number: This beneficiary ID is a mix of 16 characters. The first 8 digits are the DP ID, and the last 8 digits are the client ID of the investor.
• POA Number: The POA number is a part of the Power of Attorney agreement. An investor allows the stockbroker to operate the account of the investor according to the given instructions in this agreement.
• DP ID: The DP ID is given to the depository participant.

 

What are the Differences Between Demat Accounts and Trading Accounts?

There is a lot of confusion among investors who have just started their investment journey. One of them is the difference between a Demat account and a trading account. The table below shows the key differences between these accounts:

Parameters	Demat Account	Trading Account
Meaning	An electronic account that holds securities.	A digital platform that allows the buying and selling of securities.
Issuer	Depository participant	SEBI-registered stockbroker
Role	Helps to store purchased securities	Helps to buy and sell securities
Unique Identifier	16-digit number	Unique Trading ID
Charges	Transaction fees and Account Maintenance Charges	Only brokerage fees

 

What are the Charges Included in a Demat Account?

A lot of brokerage firms open a Demat account for free. However, they take other charges that are used for the maintenance of your account:

• AMC: Annual Maintenance Charges are charged annually by the broker to maintain your Demat account.
• Custodian Charges: Brokerage firms charge this amount and pay to the depository to ensure the security of electronic assets.
• Dematerialisation and Rematerialisation Charges: These charges are levied as a percentage of the total purchase and sale value of shares to cover all physical print costs of securities.

 

Why Choose a PL Capital Demat Account?

You should choose a PL Capital Demat account due to the following benefits:

• Instant e-KYC via Aadhaar and PAN
• Support for video KYC and digital signature
• Free account opening and same-day activation
• Minimal AMC for the Demat account and zero AMC for trading
• Minimal documents required for account opening

 

Conclusion

Understanding what is demat account and what is the use of it is crucial as it plays a vital role while investing in the stock market. It avoids the time-consuming process of handing physical certificates and addresses the risk of loss and damage. You may use the Demat account from PL to invest in securities like equity and F&O. Download the PL application from the app store and open a Demat account for free!

 

Frequently Asked Questions

1. Who can open a Demat account?

Any individual, Hindu Undivided Family, or domestic corporate entity can open a Demat account in India.

2. Can Demat accounts be opened jointly?

Yes, a joint Demat account can be opened jointly by two or more individuals, where each of them has equal rights of trading.

3. Is a Demat account compulsory to apply for an IPO?

Yes, it is mandatory to open a Demat Account for an IPO.

4. Is a Demat account compulsory for availing a Systematic Investment Plan?

No, it is not compulsory to have a Demat account for mutual fund investments. Completing the KYC formalities can allow you to invest in mutual funds. However, it is recommended to open a Demat account to hold your investments electronically.

5. What is a Demat account used for?

The purpose of a Demat account is to hold shares and securities in a digital format and keep track of security investments.

6. Is a Demat account free?

The cost of opening and maintaining a Demat account completely depends on each broker. However, most of the brokers do not charge any fees to open it.