The Role of a Demat Account in Digital Trading

A demat account is useful for holding shares and securities electronically. In fact, it is also known as a dematerialized account. Why are these accounts opened? In order to hold the shares that you have dematerialized (converted to electronic from the physical form) or purchased, thereby enabling you to trade in shares online. These account services are provided by several depositories like CDSL and NSDL in India and they are enabled by DPs (depository participants), intermediaries, and stockbrokers. Every intermediary may have specific charges as per the volume, subscription type, and other terms and conditions. 

Knowing More about These Accounts

Here are some key aspects related to demat accounts: 

• Dematerialized accounts offer the provision to electronically hold securities and shares. 
• Shares can be purchased and held in these accounts while trading online. 
• Demat accounts are useful for holding your investments in shares, ETFs or exchange-traded funds, mutual funds, Government securities, and bonds. 
• The Indian stock market has also undergone a complete digital transformation as a result of these accounts being introduced. This move has also led to better governance from SEBI or the Securities and Exchange Board of India. 
• They also contribute towards lowering the overall risks of damage, storage, theft, and other malpractices linked to securities/shares. 
• You can open an account in a few minutes with an end-to-end digital procedure and quick activation. 

Some Other Crucial Pointers

• You have to open your demat account with a DP (depository participant) if you wish to engage in online trading. 
• You can enjoy the advantage of lower transaction charges, since share transfer does not involve any stamp duty. 
• Shares are digitally transferred to your account once your trade obtains approval, while they are automatically transferred in case of any mergers, stock bonuses, and so on. 
• A T+2 days cycle of settlement is now followed by the exchanges in India. You will pay sellers on the second business day when you purchase shares and the account will be automatically credited with the securities. 
• You have to trade by placing an order via the online trading account (linked to your demat account). It will be processed by the exchange and upon verification, the shares will reflect in your holding statement. 
• If you wish to sell your shares, you will have to provide the delivery instruction note with stock details. Your shares will get debited from the demat account and the cash value will be received by your trading account likewise. 
• You will have to get the demat account linked to the bank account. The whole process involves three stakeholders, namely the DP (stockbroker, bank, or even non-banking financial institution), the depository, and the bank. 

Demat accounts are compulsory for investors as per the Depository Act of 1996. The NSDL was also established in the same year to enable the same, while the CDSL also came into being after a few more years. These agencies are custodians of all electronically-held securities, while being SEBI-registered, along with their partner brokerages.