How Demat Account Works

This article explains everything about the Demat account from its the basics to how it works.

This article explains everything about the Demat account from its the basics to how it works.

As the days pass, investing in the stock market becomes easier and easier. I mean, up until a couple of decades ago, buying stocks meant actually acquiring those huge pieces of decorative papers you’ve probably only seen in textbooks and in photographs. Now however, buying stocks requires only a computer and a bank account.

A few clicks of your mouse and lo behold, stocks of whatever company tickles your fancy arrives in your account. Ever wondered how it all works?

Demat stands for dematerialization. It is the process of converting physical financial instruments into share certificates, mutual fund investments and bonds into electronic form. It is very similar to a savings bank account where currencies are held by notional value in electronic form. This is different from a trading account and is required to trade in the equity markets.

It’s very easy to open a Demat account, assuming you have a valid PAN card, bank account and other mundane identity proofs and you haven’t fallen to Earth from a planet far far away. If you do have identity proofs and a bank account, then all you need to do is compare and find your best match brokerage firms with FinnovationZ.com and  approach your best match brokerage firm. The broker will then open the demand account for you, along with the brokerage account. When you buy or sell securities, they will just be deposited or moved out of the Demat account. You’ll need to link your bank account to the demand account, so as to facilitate

The broker will then open the demand account for you, along with the brokerage account. When you buy or sell securities, they will just be deposited or moved out of the Demat account. You’ll need to link your bank account to the demand account, so as to facilitate transfer of funds during the buying and selling of securities.

The broker will then open the demand account for you, along with the brokerage account. When you buy or sell securities, they will just be deposited or moved out of the Demat account. You’ll need to link your bank account to the demand account, so as to facilitate transfer of funds during the buying and selling of securities.

You may ask, what is the point of a Demat account? You can trade easily with the help of your long trusted broker who has now become almost a family friend. A simple phone call and a cheque would be all you would have required. I ask you to take a moment to think about the hassle you faced with the storage of those huge stock certificates once they got delivered. Or perhaps I should say, if they got delivered after all the requisite signature matches and other verification details which would inevitably get delayed because of bureaucratic inefficiencies and a million other problems. Or maybe you would find after delivery, that the certificate was a forgery.

With a demand account, there is no question of handling or being responsible for the actual certificates. You would be able to sleep easily at night without worrying about losing the certificates to theft, fire, flood or just misplacing them owing to forgetfulness. I am just going to play the devil’s advocate here and assume that you have nerves of steel and an eidetic memory.

You could have ice water running in your veins, which would allow you to remain impervious and not let the vulnerability of the certificates encroach upon your nightly sleep. Even if all that is true, wouldn’t it be satisfying to be able to do your own trades whenever and wherever you want without relying on anybody? Wouldn’t it feel incredibly satisfying to witness the instant crediting of shares, bonds and securities as soon as you complete the purchase? Because that is exactly what a Demat account offers.

Demat accounts have reduced the complicated process of buying and selling shares, bonds and securities to a few simple clicks of your mouse. It has become as simple as ordering a new pair of jeans or a shirt online. Simply pick your product, in this case the share of a company of your choice, add the required funds, and send in your order.

Of course, like any good thing, Demat accounts are not perfect and have their disadvantages too. For instance, if the thought of making transactions worth so much of money online makes you queasy, Demat accounts are probably not your cup of tea. Such accounts also do not come free od cost. Transaction charges and maintenance costs are unavoidable, although in most cases, these costs are lesser than their physical counterparts.

In my experience though, the advantages of having a Demat account far outweigh the disadvantages. I could never have expected the sheer ease with which one can buy shares through a Demat account. It really is as easy as ordering a pair of boots online. So if you don’t already have a Demat account, my advice would be to compare the brokerage firms and open a Demat account as soon as possible and get yourself in the game.

Keep Finnovating!

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