What is a Demat Account, and is it good to open a Demat Account? What are the benefits?
If you’re new to the stock market, you’re likely to come across the term ‘demat account.’
Have you ever been curious as to what it is?
That is precisely what we will discover in this article. In addition, we’ll look at the characteristics and advantages of demat accounts and also why you need one to save your Physical Share Certificates from getting frozen. So, without any further wait, let’s begin by addressing the question,
“What is a Demat Account?”
A Demat account is an electronic account opened with a depository such as the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL) (CDSL). It allows you to keep electronic records of financial assets such as shares. A Demat account is used to digitally hold the stocks and other securities that you own, similar to how a bank account is used to securely hold your money (virtually).
Characteristics of a Demat Account
Electronic Securities Transfer- Through an online Demat account, you may quickly transfer the securities you hold. This makes the whole process of buying/selling company shares much more efficient. Furthermore, online Distribution Instruction Slips can be used to electronically transfer securities from one Demat account to another (DIS).
Ability To Take Out Loans Against Your Securities- Both NSDL and CDSL, the Demat account service providers, let you use your securities as collateral for a loan.
Ability To Get Dividends Straight From The Company- Demat services allow you to receive dividend payments and reward issues of newly issued shares straight from the company.
Benefits Of Demat Accounts
Reduced Risk Of Document Loss- Actual bonds and shares have a significant risk of document loss. If you are forced to relocate due to a natural disaster, the shares may be misplaced. As a result, keeping stocks in an online version and embracing Dematerialization services is a considerably better and safer solution because it gives Demat account holders a lasting documentation of their investment.
Avoiding Forgeries- The risk of fraud is greater when dealing with actual shares or bonds. When it comes to maintaining a digital demat account, on the other hand, you have all of the necessary information and authentic data on file, preventing forgery and impersonation.
Loan Facility- In addition to use as a deposit for your funds, you may use the securities in your demat account to get various bank loans. You can use the securities as collateral to receive a loan against securities from your bank.
Reasonable Cost- One of the most obvious advantages of internet transactions is the cost savings. Similarly, opening a Demat account online can save you money on charges like stamp duty and other processing fees that come with physical bonds stating all the demat services. The sole fee associated with a Demat account is brokerage. Discount brokers, on the other hand, will allow you to save more money.
Time Saver- Using a Demat account to buy and sell shares takes very little time. As a result, share liquidity is easier in this circumstance. Transferring actual shares, on the other hand, was a time-consuming operation. Because the securities are held in a dematerialized form, online transactions are executed quickly for the Demat account holders.
Instant And Prompt Tracking- Another advantage of opening a Demat account is that Demat account holders will not have to deal with any tangible paperwork. It always minimises the work required to keep track of each of them. As a result, they won’t have to keep track of anything manually.
Zero TDS on Demat Equities- TDS, or Tax Deduction at Source, is one of the challenges that taxpayers encounter. Nonetheless, when a Demat account user makes payments from his account, the CBDT (Central Board of Direct Taxes) has provided dispensation from TDS. Furthermore, TDS is not taken from the interest you earn on your bonds and equities. To avoid paying TDS, ensure your stocks are stored in Demat mode and are listed on the NSE and BSE.
Global Investment- The development of Demat accounts has aided globalization tremendously. Through these accounts, foreign investors have simple access to the Indian stock market, benefiting India’s economy.
Is It Good To Have A Demat Account?
Consider a trading business in which all of your shares are exclusively traded in physical form. That’s correct! Shares that are printed on paper. As a result, every time you had to purchase or sell a stock, you’d have to be ready to do a mountain of paperwork. Technology, thankfully, has come to our aid. People can now buy and sell their shares online using a demat account. As a result, instead of a real exchange, there is just virtual stock trading. You can keep an eye on your shares and strike a deal when you believe it will benefit you.
As per the SEBI Circular No. SEBI/HO/MIRSD/MIRSD_RTAMB/P/CIR/2021/655, dated November 03, 2021, mentioned that any service request would be entertained by Registrar & Transfer Agent (RTA) only upon registration/update of PAN, KYC, and nomination details. SEBI has shown the path to prevent shareholders from getting their physical shares frozen. Stockholders can apply for a Demat account and get those physical shares dematerialized.
That suggests that all the Physical Share Certificates will be considered frozen if not converted to Demat form. Rurash Financials offer exclusive services for Physical to Demat Conversion to make the dematerialization services exclusive and hassle-free.
You can reach out to trusted Physical Share Consultants who will help you get the share transferred in a different name, signature change, torn certificates, ownership transfer and many more.
