What is Demat account, and What is the use of it? To understand the concept lets talk about movies.
Have you seen Harshad Mehta or the BIg Bull?
Then you must have these questions in your mind about how on earth this even happened without getting noticed?
Was there no check and control in place then?
The whole Banking System was exploited & people didn’t know about it for years.
To understand the whole scenario, we must know What is Demat account, and What is the use of it?
So the answer to all the disturbing questions above was too much paperwork, manual reconciliation system, dependence on physical inventories, the time lag in transactions.
In short, the whole system was chaos. It was mainly due to our dependence on a physical model of Banking. And hence to counter this gradually, the whole Banking system became digitized, including shares & securities.The demat account came into existence then for the purpose of safeguarding the electronic share & securities
Demat account is nothing but the dematerialized account of shares & securities.
In simple words, the physical shares & securities were converted into digital shares & securities & now they are stored in a Demat account rather than with a broker.
Lets understand the concept of Demat accounts and its uses step by step.To simplify the subject, I have enumerated the contents of the article below.
Table of Content
|1||What is a Demat Account|
|2||How to open Demat Account|
|3||What is a central depository?|
|4||Which is better, CDSL or NDSL|
|5||How to use Demat account|
|6||Difference between Demat account & Trading account?|
|7||How can we transfer shares from one Demat account to another account?|
|8||How to close Demat Account|
|9||Benefits of Demat Account|
|10||Disadvantages of Demat Account|
|11||How Can we withdraw money from the Demat account|
|12||Which Demat account is Best|
1. What is Demat account, and What is the use of it?
As the name suggests, a Demat Account is short of Dematerialised account. The physical/material form of shares & securities are dematerialized into digital form & stored digitally in this account.
It is like a bank account for your share certificates and other securities that are held in an electronic format. We can hold shares, bonds, government securities, Mutual Funds, Insurance and ETFs in digital form in the Demat account.
2.How to open Demat Account?
Demat account opening is similar to account opening, the only difference is you open it with a central depository -National Securities Depository Ltd (NSDL) or the Central Depository Services Ltd (CSDL).
These depositories appoint agents called Depository Participants also called as DPs, who act as intermediaries between themselves & investors.
Big financial institutions are given a DP status, for example ICICI Bank, HDFC Bank etc.
You can open Demat account with any of the DPs.
Demat account can be opened online too submitting your KYC documents like PAN, Aadhaar, Address and Identity proof, along with bank account details.
3.What is a central depository?
As per the Depository Act 1996, SEBI appointed two depositories-
NSDL & CSDL.
As per the law a depository is an organization under the law which holds the investmentts or securities such as shares, debentures, bonds, government securities, mutual fund units etc. of investors in electronic form or digital form
They held the securities basis request by the investor(when they open the demat account) through a registered DP or depository participant.They also facilitate transactions pertaining to securities held with them.
4.Which is better, CDSL or NDSL?
Apart from address & formation date there is no difference between the two depositories from the customer’s point of view.
5.How to use Demat account?
You can use Demat account both offline as well as online.
Once your Demat account is opened ensure that you get the following details from your DP-
Demat Account number:
DP ID: The ID is given to the depository participant.
POA number: This is part of the Power of Attorney agreement, where an investor permits the stockbroker to operate his/her account as per the given instructions.
You will also receive a unique login ID and password to your Demat and Trading Accounts for online access.
Once your receive your credentials you can start using your account through the DPs website.
6.Difference between Demat account & Trading account?
Generally a Demat Account is linked with a trading account, which is required for buying and selling shares on the stock market.A Demat Account contains the details of the shares and other securities in your name. To purchase and sell shares, you need to open a Trading Account.
7.How can we transfer shares from one Demat account to another account?
We can transfer shares from one Demat account to another account through online & offline both channels
For offline transfer Debit Instruction Slip needs to be signed. This Debit instruction slip is provided by the Depository Participant.You would need ISIN number unique to all shares, Target client id.If the transfer is intra depository that is NSDL to CDSL & vice versa, choose off market transfer, otherwise chose Inter depository.
Like all other transactions share transfer can be done online now by using
Online transfer of shares can be done using CDSL / NSDL. CDSL has a facility called EASIEST to help transfer shares online & NSDL has a facility Speed-e.
Registration on the depositories website is mandatory before we begin the transfer.
ONce the form is filled & customer is registered, printout of the form needs to be taken & has to be deposited to the Depository participant along with your signatures.
The DP will further do the processing along with the concerned depository & login credetials will be provided.
8.How to close Demat Account
Demat account cannot be closed online, one has to visit their depository participant (DP ) & close the account by signing the required forms.
Here as well there are two scenarios-
a. Account closure with NIL securities- It can be closed with a single request at the DPs office.
b. Account closure with Securities in account-
The securities needs to be transferred before account closure request is accepted. For share transfer details are shared above. The shares can be transferred either in our own name or in the name of any third person.
9.Benefits of Demat Account-
Demat accounts came to counter a lot of disadvantages in our system. So it has a wide array of advantages, such as-
Faster Transaction time
Safety & Security-less risk of fraud
One stop storage solution for all financial assets
Simplified accounting & management
10.Disadvantages of Demat Account
Though the disadvanatages are negligible as compared to the advantages,still as every coin has two side a Demat account has disadvanates as well.
The main disadvanates are enumerated as follows-
High cost of maintaining Demat account.
You need to be tech savvy to handle demat accounts
11.How Can one withdraw money from the Demat account?
As such there is no option of withdrawing money directly from the Demat account, however there are two options through which one can liquidate their demat accounts-
Sell shares/securities –
You can sell shares from your Demat account & transfer the proceeds to your bank account.
You can apply for loan against the securities held in your Demat account to your DP.There are various margins for various instruments ranging from 50% to 80% of the value of securities held in the account. Not only that you dont have to pay interest on the whole amount , but only for the amount you utilise.Also the securities are held in your name & will be released in the account once you close the loan
12.Which Demat account is Best-
Here is the list of 9 best demat accounts in India as taken from equityblues.com-
Upstox demat account.
Angel Broking demat account.
India Infoline (IIFL) Demat account.
Sharekhan demat acccount.
Motilal Oswal Demat Account.
ICICI Direct demat account.
HDFC Securities demat account.
Kotak Securities demat account.
I hope the concept of Demat accounts will be clear now & you clearly know what is demat account and what is the use of it.
Please share among your family & friends & help me make India Banking literate…