You’ve decided to invest in the stock market. But what is your entry point into this domain? That’s where the demat account steps in. It serves as your gateway to the stock market, enabling you to begin investing. Without a demat account, investing in the stock market isn’t possible at all.
So, yes, it is necessary to open demat account before getting involved in the stock market. In this blog, we will clarify what a demat account is, examine its benefits, and guide you on how to open one. Let’s begin!
What is a Demat Account?
A Demat Account is comparable to a bank account, but rather than holding money, it keeps your share certificates and other securities in digital form. The term “Demat” stands for dematerialisation, referring to the conversion of physical shares into a digital format. This account makes it easier to handle investments like shares, bonds, government securities, mutual funds, insurance, and ETFs. It eliminates the need to manage physical share certificates and their associated documents.
Let’s clarify the concept of a Demat Account with an example. Suppose you want to buy shares of Company X. When you acquire those shares, they need to be registered in your name. In the past, you would receive physical share certificates from the exchange bearing your name. This process involved a lot of paperwork. Each time a share was bought or sold, a new certificate had to be created. To address this issue, India established the Demat Account system in 1996 for trading on the National Stock Exchange (NSE).
Now, there’s no need for cumbersome paperwork, and physical certificates are no longer issued. When you purchase shares of Company X, you simply receive an entry in electronic form in your Demat Account. That’s the essence of a Demat Account.
Today, if you want to trade or invest in the stock market (whether on the National Stock Exchange or the Bombay Stock Exchange), having a Demat Account is essential. You need your Demat Account number for the electronic settlement of any trades and transactions you conduct.
What are the Benefits of Opening a Demat Account?
No Paper Certificates
Before the introduction of demat accounts, shares were available as physical paper certificates. When you bought shares, you had to keep track of these certificates, which were easily lost or damaged. The transfer of shares was also a lengthy process. Demat accounts transformed all of this by making everything electronic, saving you a lot of hassle.
Ease of Storage
With a demat account, you can store as many shares as you want. This makes it easier to trade in larger volumes and helps you monitor your holdings. You can also swiftly transfer shares using your demat account.
Variety of Instruments
A demat account is not just for stocks. You can also hold other assets such as mutual funds, exchange-traded funds (ETFs), and government securities. This allows you to adopt a broader investment approach and easily build a diverse portfolio.
Easy Access
Accessing your demat account is quite simple. You can do it from your smartphone or laptop, enabling you to manage your investments anytime and anywhere. A demat account makes it easier than ever to invest for a secure financial future.
Nomination
A demat account features a nomination option. You can name someone as a nominee according to the rules set by the depository. If you pass away, this nominee will inherit the shares in your account. This feature aids in future planning and can help prevent legal disputes.
How to Open a Demat Account?
Now that you are aware of what a demat account is, let’s see how to obtain one. When you open a demat account, you do so with a central depository such as the National Securities Depository Ltd. (NSDL) or the Central Depository Services Ltd. (CDSL). These depositories have agents known as Depository Participants (DPs) who serve as intermediaries between the depositories and investors.
For instance, you can open a demat account with a bank like HDFC Bank, which acts as a DP. You can also open free demat account online using a stock market app like HDFC Sky.
Just like a bank account holds your money, a demat account holds your investments in electronic form. You can easily access it via a laptop or smartphone with an internet connection. All you need is your unique login ID and password. Unlike a bank account, your demat account does not require a minimum balance.
You can visit the websites of any of the depositories to find a list of DPs where you can open a demat account. When selecting a DP, consider their annual fees, as these can vary.
It is possible to have multiple demat accounts, but you cannot open more than one account with the same DP. This means one PAN card can be linked to several demat and trading account. Make sure to check the eligibility criteria and the required documents for opening a demat account, so you are well-prepared.
Conclusion
In conclusion, it is clear that to invest in the stock market, you must have a demat account. Without it, trading in the stock market is not possible. A demat account streamlines the process of holding and managing your shares electronically, making trading more efficient. Therefore, if you are looking to kick off your investment journey, opening a demat account should be your first move.
With HDFC Sky, you can invest in the stock market with ease and can also enjoy delivery trading, where you can hold your stocks for the long term without any additional charges.
Frequently Asked Questions (FAQs)
Can we take a sip without a demat account?
No, you cannot take a sip in the stock market without a demat account. A demat account is essential for holding and managing your shares electronically. Without it, you cannot buy or sell shares.
Do I need a bank account for a demat account?
Yes, you need a bank account to open a demat account. The bank account is necessary for transferring money when you buy or sell shares. It links your demat account with your trading activities.
What is the minimum age to open a demat account?
The minimum age to open a demat account is 18 years. If you are under 18, you can open a demat account with the help of a guardian or parent.
Why do I need a demat account to start trading?
You need a demat account to start trading because it holds your shares in electronic form. This account simplifies the buying, selling, and management of your investments without the inconvenience of physical certificates. Without a demat account, trading in the stock market isn’t feasible.