Dematerialised accounts have transformed and revolutionised Securities Trading. Introduced in India in 1996 by the National Stock Exchange, they have made the process faster, secure, efficient, and convenient. Without these accounts, Trading and investing in securities is tough.
You cannot imagine Stock and Derivatives Trading in the current age without a Demat Account because Indian investors today understand the importance of opening it. The number of account opening applications is increasing every year. The popularity shows how Indians are gradually moving from traditional investments like gold, real estate, and Fixed Deposits to Equities and Derivatives.
Definition
A Demat Account allows the investor to store and trade Bonds, Stocks, Mutual Funds, ETFs, and other securities in electronic format. Earlier, you exchanged them through physical certificates, making transactions and storage insecure. However, dematerialised accounts reduced the time for clearing, eliminated fraud cases, attracted investors, reduced brokerage rates, and increased Trading volume, especially in the Equity Market.
All investors must open this account to trade in securities. India’s Securities and Exchange Board requires all companies listed on the Commodity, Stock, and Derivative Exchanges to make their securities electronically available on the respective exchanges.
Benefits
The Dematerialised Account lets investors perform electronic Trading of Stocks, Bonds, Mutual Funds, Exchange-Traded Funds, etc. It offers several benefits over physical securities Trading. The discovery of security prices is faster and convenient. There is no risk of loss or damage of physical certificates in storage or transportation. Technical and fundamental analysis of securities is possible. The risk of forged share certificates gets eliminated.
Additionally, it reduces the transaction costs without paperwork for securities transfer. Updating the new address is fast and easy as the information updates with the Depository Participant and the companies from where you buy the securities.
Working
A Demat Account works like a Savings Account. In the latter case, you store cash electronically with the bank. Meanwhile, in the former, you hold shares of various companies affiliated to the National Securities Depository Limited electronically. Credit and debit occur in your Dematerialised Account when you buy or sell shares or securities.
Participants
NSDL and Central Depository Services Limited are the two depositories formed under the Company Act, 1956 and registered by the SEBI. They have the authority to enrol agents or DPs to provide Demat services to investors. Here are the participants’ lists:
Bank
It is mandatory to link the Savings Account with the Dematerialised Account to buy securities. The buying and selling of shares occur from here.
Depository Participant
The DP is a non-broking financial institution authorised by the NSDL or CDSL to handle Demat Accounts on their behalf.
Depository
Depositories such as the NSDL and CDSL maintain and open the Dematerialised Accounts. They make transactions and update them, act as an intermediary between you and the depository, and hold the account on your behalf.
Keyword: Demat Account
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