Indian equity market has significantly evolved over the last 2 decades. You can trade in certain types of derivatives if you don’t have a DEMAT Account but you will need a DEMAT Account if you want to trade in equity market. A DEMAT Account is maintained either by NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited) which are regulated by Securities and Exchange Board of India (SEBI). A DEMAT Account can be opened with no balance of shares, i.e., you can have zero balance in your account. Having a DEMAT Account allows you to buy/sell shares & you can also store them safely in electronic form.
Objectives of a DEMAT Account: -
1) Makes Operations Simpler:- This is the most crucial reason why DEMAT Accounts were made mandatory in 1996. Transfer of shares or securities is now easier than ever and along with easy process, it is also time-efficient.
2) Safety:- Before the introduction of DEMAT Account for stock market trading, companies used to issue security certificates which were very easy for brokers to forge. Ever since DEMAT Accounts came into existence, forgeries or thefts are totally eliminated as it is very easy to track electronic transactions and shares which makes it easier to monitor any forgery or theft.
3) Cost effective:- Using DEMAT Account saves you a lot of costs. For e.g., paperwork costs, account opening charges, etc. Before 1996, DPs were supposed to charge paperwork costs to the investors as the whole trading was taking place into physical share certificates. Moreover, Annual Maintenance Charges (AMC) were also high as compared to today’s AMC. Using DEMAT Account also eliminates all the paperwork and this paperless process also avoids the requirement of purchasing share transfer stamps, therefore, also eliminating stamp duty.
4) Easy Change of Address and other Details:- Before 1996, changing of address or other details meant informing different companies separately. Investors were required to fill up the change of address form of different companies which was a big headache for investors and this also leads to time wastage of investors. This was one of the main objectives of the DEMAT Account is to help investors get rid of such hassles and simplify the address-changing procedure.
Benefits of a DEMAT Account:
1) Easy Management and Accounting:- Having a DEMAT Account provides you a facility that you can have all your shares and other financial securities and assets at one place. Since you now have all your shares and other financial assets at one place, it becomes very easy to manage your accounts and records. You will need these accounts and records for filing your income tax & annual audits at the end of financial year (1st April – 31st March).
2) Easy Holding:- In today’s era of stock market trading, opening a DEMAT Account is an easy task for an investor. As the whole procedure of DEMAT Account opening is online, it saves a lot of money, time and effort. With a DEMAT Account, the need of holding physical share certificates is totally eliminated and maintaining the share holdings and other financial securities have become simpler.
3) Multiple access options:- With the help of a DEMAT Account, you can conduct investing, monitoring, trading and other stock market related operations with the help of an internet access on a computer, mobile or on a tablet. Since the whole stock market trading is conducting electronically, an internet access and an electronic is all you need to trade in stock market.
Importance of a DEMAT Account: -
1) Safe Repository of Shares:- A DEMAT Account allows its user to maintain a safe and a systematic record of all the transactions and also eliminating the risk of any misplacement or theft. A DEMAT Account also keeps you safe from any threats like incomplete paperwork, fake securities, etc. These errors were supposed to occur before dematerialization in 1996.
2) No trading is possible without it: - As you may know that without a DEMAT Account, you cannot trade in stock market and you are also required to have a trading account as a DEMAT account will only show the balance of your holding and not the balance of your money. So, a trading account is also mandatory in order to know your monetary balance and moreover, both your DEMAT Account and trading account should be linked so that it becomes easy to maintain both your accounts. Without linking your DEMAT and trading account, you will not be able to buy/sell shares in stock market.
3) Quick and Convenient:- When dealing in stock market was conducted physically, investors were supposed to meet their broker personally either you want to buy shares or sell shares. But since dematerialization has been conducted, there’s no need to meet your broker before every transaction in stock market as DEMAT account operates electronically and trading in stock market can be completed within seconds and with just a few mouse clicks. When there was physical exchange of shares, there were a lot of manual errors and sometimes shares and other financial securities (bonds, debentures, mutual funds, etc.) had also got lost or theft as it was very easy to do so. But since DEMAT Accounts came into existence, there is no chance of any loss, theft, wrong transfer of number of securities, security transfer to wrong person and the whole trading process is going on smoothly.
Conclusion:-
From the above points, it is very much clear that a DEMAT Account is mandatory for trading in stock market as the whole stock market trading is conducted online and there is no physical transfer of shares and other financial securities. Using a DEMAT Account, you can hold your shares electronically and safely. If you want to make your share trading experience smooth and fast, then you must definitely use a DEMAT Account. You can get your DEMAT Account opened with SMC while sitting at home or office along with zero account opening charges and zero paperwork.
