Demat account – Features and Benefits

Posted by neha sharma on May 8th, 2019

If you’re a beginner investor, one of the requirements is to have a demat account. A demat account is an electronic repository for your investments. What this means is that the demat account is a record of all your investments such as:

• Shares
• Mutual fund units
• Bonds
• Debentures

There are several different brokers with whom you can open a demat account. Opening a demat account is simple and can be done both online and offline. All you need to do is fill up a form and submit the relevant KYC documents and bank documents.

Here are some features of a demat account:

1. Similar to a bank account:

A demat account can be compared to a bank account. Like a bank account, investments are credited when purchased and debited when they are sold. It holds all the investments in an electronic form which makes it convenient to transfer. Any shares received in an initial public offer (IPO) are credited to this account. 

2. Record of investments:

A demat account shows an exhaustive record of the investor’s investments. This includes the types of investments, the date of purchase, the purchase price, the present value of the investment and the notional gain or loss on the investment. It also shows any investments that are partly paid up.

3. Incomes from investment:

A demat account is linked to the investor’s bank account. This means any incomes received from investments will automatically get credited into the linked bank account. For example, if a company from the investor’s portfolio declares dividend, this dividend gets credited directly into the investor’s bank account.

Benefits of a demat account:

1. Easy transfers:

It is very easy to purchase and sell investments that are in the demat form. Since these are electronic, they can be purchased and sold in a matter of a few clicks using the trading account. A demat account linked to a trading account can help the investor make investments and grow capital.

2. No risk of handling physical documents:

One of the biggest advantages of having a demat account is that it completely eliminates any possibility of loss, theft or damage of physical share certificates or mutual fund units. A demat account handles everything electronically which means there is an electronic trail for every transaction.

3. Odd lots:

It is very easy to transfer investments in odd lots. Selling odd number of shares used to be very difficult during the outcry time. Now, with the demat account, it is possible to sell and buy one or two shares of a stock since the exchange operates on an order matching system.

It should be noted however, that to trade in the stock market, you will also need a trading account. The trading account is used to make purchases and sales in the stock market. When a trade is executed from the trading account, the stocks are debited or credited from the demat account. A demat account coupled with a trading account can help an investor to make investments in the market.

Author bio:

Neha Sharma is a finance student who loves to write in her free time. She has spent considerable time researching about Demat account. Through her work, she has listed its features and benefits