2 min read
25 May 2021

What is a demat account?

A demat account helps investors hold shares and securities in an electronic format. This kind of account is also called a dematerialised account. It also helps to keep proper track of all the investments an individual makes in shares, exchange-traded funds, bonds, and mutual funds in one place.

Importance of a demat account

  1. Digitally secure way of holding shares and securities
  2. Eliminates theft, forgery, loss, and damage to the physical certificates
  3. Quick transfer of shares

What is Dematerialisation (demat)?

Dematerialisation is the process of converting the physical share certificates into electronic form, making it easy to maintain and access them from anywhere. Earlier, shares were held in the form of physical certificates, which were cumbersome to store and transfer. The advent of a demat account made it a lot easier to handle shares. An investor who wants to convert his physical shares into digital form needs to open a demat account with a depository participant (DP).

Benefits of a demat account

  • Eliminates the risk of paper-based share certificates: Before the advent of the demat account, shares existed as physical paper certificates. If you held shares of a company, you had to safe-keep a dozen of paper certificates. These were vulnerable to tampering, theft, loss, and forgery. Moreover, the transfer of shares involved lengthy paperwork that was prone to error and delays. With a demat account, you can store all these shares electronically in a safe and secure digital repository
  • Convenient share storage and transfer: This allows you to store any number of shares, so you can trade in volumes and monitor the details of all the shares you hold in a demat account. It further facilitates the swift transfer of shares while trading online
  • Bonus stock-splits get automatically updated: If an initiative of the company whose shares you are holding brings in a change to its stocks such as bonus issue, stock split, etc., it will be updated automatically in your demat account
  • Stores various investments: Besides the shares, the demat account can also hold multiple assets, like bonds, mutual funds, exchange traded funds, government securities, etc
  • Easy access online: You can access your demat account anytime, anywhere, through your smartphone or laptop
  • Nomination: A demat account also provides the nomination facility as per the process described by the depository. In case of the investor’s demise, the appointed nominee will receive the shareholding in the demat account

Additional Read: How to Buy Shares

How to open a demat account

To open a demat account, you start with reaching out to a stockbroker, like Bajaj Financial Securities Limited (BFSL). You need to complete an online account opening form, which is 100% paperless and takes less than 15 minutes. Below are the steps to open a demat and trading account with BFSL:

  • Open the account opening form
  • Enter your details like name, email id, phone number, address, etc., and your PAN number
  • Add your bank details
  • Upload the necessary KYC documents for address and identity proof
  • Perform an in-person verification by recording a short clip of yourself
  • E-sign the form through Aadhar linked mobile number
  • After applying, you will receive a confirmation regarding your account opening along with your login credentials.

How to use a demat account?

Using a demat account is simple. Your demat account gets linked with your trading account, which in turn gets linked with your bank account. To begin trading, you need to transfer funds from your bank to the trading account.

After adding funds, you can place an order to buy shares using your trading account. Once the order gets executed, the shares will get transferred to your demat account by the end of T+two days, where T is the day the order got executed. Since both demat and trading account are closely integrated, all these actions happen swiftly and seamlessly. Similarly, you can sell a share in your demat account by placing a sell order in the stock exchange using your trading account.

Demat account FAQs

Is a demat account safe?

Yes, demat accounts are secure. Either of the depositories governs every demat account - national securities depository limited (NSDL) and central depository services (CDSL), and they send alert messages, emails, and notifications for transactions performed.

Yet, it is advisable to be vigilant of any security transactions in your demat account. It is a safe method to hold your securities as it prevents the risk of tampering, loss of physical shares, or forgery.

Can I open two demat accounts?

Yes, it is legally possible to open more than one demat account per person. You can have multiple demat accounts in your name. But an investor can open only one demat account with a depository participant (DP) or a broker. If you intend to have another demat account, you can open a demat account with another broker or a DP. An individual cannot have multiple demat accounts with the same stockbroker.

Why is a demat account needed?

A demat account is needed to hold the securities (shares, bonds, mutual funds, etc.) in an electronic format. A demat account is a prerequisite for equity delivery trading in India. A demat account is also needed while applying for IPO (initial public offering) as the allotted shares get credited to the demat account.

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