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Why Demat Account is Required?
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If 30 years back someone said the word Demat Account, hardly anyone is aware of the term or significance but today DEMAT Account is as common as a bank account. So basically, What exactly is a DEMAT Account, and Why demat account is required?
Demat account is meant for the investors who are looking for a potential investment opportunity in the share market. But what is the role of the Demat account and why it is required for investment, for this let’s dive into the document below?
Aims and Objectives of Demat Account
To understand the requirement of the Demat account, it is essential for investors to know the aims and objectives of the Demat account.
The major objective of the Demat account is to offer safety to your holdings and further streamline the process of trading across different available segments in the share market.
Now as already known that all the activities of the Demat account are being regulated by SEBI and further its operations and maintenance are being regulated by the major depositories CDSL and NSDL.
But here is the question, do you need a demat account for all kinds of trading needs. Is there any particular segment where you can trade without opening a demat account with a stockbroker?
To get the answer for all this, let’s dive in.
Why Demat Account is Required for Stock Market?
A demat Account is also known as a Dematerialized account that holds your shares and securities in an electronic format. If you have no idea about what you just read, go ahead and check out the Dematerialisation meaning first.
Prior to 1991, all the investments, shares, and certificates were held by the person physically in the form of a paper.
In case the paper is lost, it became very difficult to track the shares and hence all this was causing a lot of manipulation in the stock market, so in 1996 the Indian Government decided to dematerialize all the certificates held in the form of paper to electronic form in a Demat Account.
So, in short, a share market is like a big shopping mall, you can trade shares, commodities, currency and apply for IPO under one roof and can further keep them secure in your demat account.
To make all this clear demat account is required to join share market.
Is Demat Account Necessary for Trading?
We discussed why one must have a Demat account.
In fact, when it comes to sharing market investment, the Demat account is the first step.
But is Demat account necessary for trading specifically, intraday trading?
Well! for this let’s rewind the role of the Demat account. Demat account is meant to hold your securities in an electronic form. So whenever you trade in the share market then your shares get credited to the Demat account in T+2 days.
Now here, since the settlement time for trading is 2 days, here the requirement for a demat account in intraday trading makes no sense.
Hence, if you specifically want to do intraday trading, then you do not need a Demat account.
However, stockbrokers provide you the provision to open 2-in-1 i.e. trading and Demat account under one cost. So, if you are looking forward to getting started with trading then set your priorities and open an account now.
Is Demat Account Required for IPO?
Next comes the importance or role of the Demat account in IPO investment.
IPO is the gateway for investors to begin their journey in the share market.
One can fill the application for initial public offerings via ASBA, where one needs to enter the bank account number and Demat number.
Both these number have their specific roles in IPO investment. On one hand, where the bank account is required to block the amount corresponding to the IPO bid, the Demat account role comes into play when the shares of the company get allotted to you.
Once you get the IPO allotment the amount gets debited from your bank account, and at the same time, the shares get credited to the demat account.
So, here if you are thinking to apply for the IPO then YES you require a Demat account.
Is Demat Account Required for Sovereign Gold Bond?
Next comes the category for sovereign gold bonds. Here Sovereign gold bonds are issued by RBI on behalf of the Government of India, but the question is whether you need a Demat account to invest in such gold bonds.
The answer is NO!
You can it and can secure it in the RBI books, but in case you want to offer additional security to the bonds, then you can reach out to the stockbroker or bank to dematerialize it by opening a Demat account and by submitting the CMR report to the DP while placing the request for dematerialization of Sovereign Gold Bond.
Is Demat Account Required for Mutual Funds?
Mutual Funds are the most common and approachable investment option in India among investors but do you need a Demat account for investing in the mutual funds.
Here mutual fund companies do not ask their investors to have dematerialized accounts. All that is required is a few important documents to complete the KYC process and to validate your details to begin your investment journey.
Apart from this, there are some more benefits of Demat account that make it even more important for investors to open a Demat account to invest or trade in the stock market.
Importance of Demat Account
As already discussed that you can trade and keep your stocks and other securities securely in your Demat account there are many more reasons why a Demat account is required to trade in the stock market.
Let’s discuss some of the major reasons why the Demat account is mandatory for stock market investment.
1. Safety
Could you imagine keeping track of multiple share documents & certificates and maintaining them for years and years?
Yes it sounds difficult, hence having a Demat account solves this problem.
Demat Account lets you keep all your shares and other securities not only safe but also protects from being misplaced. The securities and investments are kept in electronic format, and they have an extra layer of protection on them. No one except you has the access to your Demat Account which makes your investment very safe and secure.
2. Ease To Use
Opening a demat account provides you a free trading platform where you can trade in different segments without any hassle.
Demat account helps you to keep all the securities and investments in one place, along with that every information related to that particular investment is also available.
Thus, you can track your investment and also manage your portfolio seamlessly. Not only this you can keep yourself updated with the market condition to plan your investment accordingly.
3. Essential For Financial Planning
Earlier the financial planning was restricted to the bank FDs, real estate, gold investment but with time the growing awareness about the trading and investment and stock market has increased the demand for demat account.
The demat account in simple terms is the gateway to plan and invest in the stock market.
So, if you are the one who is looking forward to doing make your future financially secure, then it is time to understand why demat account is required and proceed further with the account opening process.
4. Less Cost
Most of the advancements helped us to reduce the cost. Right? So, when it comes to the demat account opening
Holding the shares in the physical form involved a lot of charges. For example, there were AMC for Demat Account, holding charges, stamp duty charges.
With the advent of the Demat Account, most of these charges have been slashed. Hence it is easier to maintain the investment. There is a lesser cost involved in holding securities now thus making it convenient and cheaper for the traders and investors to invest in more securities with the same amount of money.
When it comes to reducing the cost of a Demat account, then it is important to look for a stockbroker offering free Demat account services. For this, there are many on the list like the one Tradingo demat account. All you have to do is to do your research, analyze and compare the services to pick the best one for trading.
5. Global Access
Opening a demat account with the stockbroker in India is not restricted to any national boundaries. So for those looking for the importance and the reason why a demat account is required, here is the one.
Similar to your bank account, you can access your demat account with a single click of a mouse from any part of the world. Also, the trading platform provided by the broker makes it simpler for traders to access the market condition of the Indian stock market and plan their investment in the desired stocks in no time.
6. Convenient
Another major reason why demat account is required is convenience. To make it clear let’s assume one situation where all the documentation and work records were maintained in physical form in files. Wasn’t it difficult for the manager and the concerned person to keep track of every work and to secure their work?
Similar is the case of the demat account where every share you bought was provided in the form of physical form. But a demat account now helps you to trade conveniently using an app and secure your shares in an electronic form thus protecting them safe from any kind of fraudulent activity.
7. Uneven Lots
Are you still contemplating why demat account is required?
Here comes the other and the most important one.
With the help of a Demat Account, it is even possible to even purchase or sell a single share, earlier the investments were only possible in even numbers, odd lots were not possible. Demat Account lets you hold or sell odd numbers as well.
We have come a long way since the inception of the Demat Account set up as per the Depositary Act of 1996, from the time taking process of holding the shares in physical form to securing the securities in an electronic form in the demat account.
Conclusion
Demat Account has a lot of advantages, with the ease of access it makes the process of investments very smooth and transparent. It has eliminated a lot of fraud, fake transactions, and manipulation.
Opening a Demat Account is as simple as opening a bank account, when you enter the world of financial planning, the first step will always be to set up a Demat Account.
In all, when entering into the stock market with the objective of doing delivery trading or applying for IPO then, yes having a demat account is compulsory.
On the other hand, the traders actively doing intraday or trade in futures & options do not require a demat account and can trade using their trading account alone.
So it is time to know the reasons why demat account is required and start trading actively with the best stock broker in India.
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