Reasons Why You Need A Demat Account
The stock market is open for everyone who wants to earn profits from their investments. Whether you are a college student, a young businessman, a professional person, or a retired person, you can buy and sell securities and shares in the stock market. The old investment method was a very lengthy process, and it made an investor run from broker to broker to place an order in the market.
But now everything is digitalized, and thus, investment has to become a very easy process, and people no longer need the help of brokers for trading. Investors only need to open a Demat account. But first, you need to know what a Demat account is and why it is so important to Open demat account.
What Is A Demat Account
A Demat account is a dematerialized account that facilitates the investor to hold shares and securities in electronic form. While trading, when you buy or sell a share, all transactions are recorded in the Demat format. A Demat account holds every share, securities, bond, and a mutual fund that an individual has brought.
To open a Demat account online, you need to register with Depository Participants(DP). There are two types of depositories: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). Generally, the goal of a Demat account is to eliminate the physical share certificate that the investor needs to hold earlier and convert those certificates into an online entity, which makes it easy to track and monitor the holdings.
Reasons To Open Demat Account
There are several key reasons for opening a Demat account. Some of these reasons are:
Compulsory For Stock Exchanges
The Stock And Exchange Board Of India (SEBI) has made it clear that without a Demat account, no investor will be allowed to trade in the stock exchanges. Two major stock exchanges are the Bombay stock exchange (BSE), National Stock exchange (NSE). They make the opening of a Demat account mandatory to analyze the holdings properly. To make your account feasible for online trading, you should create a Demat account.
Simple And Convenient Storage
As we come to know that Demat accounts hold shares and securities online, eliminating the physical form of holdings. Earlier, investing in the stock market was a complex process, as the individual needed to put lots of effort into buying stocks or bonds. First, they were required to find a broker and then store the papers of their bought shares safely.
Moreover, they had to record everything, and there was no immediate gateway to buying and selling stocks. These problems can only be solved by opening a Demat account and trading online. And if you want to make a new Demat account with another broker, you can do that by following some simple steps and filling a demat account closure form.
Saves Time As Well As Money
When nothing was digitized, investors put lots of effort into investment. Due to the scarcity of brokers, it took much time for investors to access the stock market. To hire a broker, consultation, completion of formalities, and delivery of purchased physical shares certificates all consumed extra money at every step.
This increases the overall cost of investment, as individuals were asked to pay different fees to the brokers too. But with the advancement of Demat accounts, people’s time, effort, and money are both saved. This is because the requirement of a Demat account is increasing day by day.
Reduction In Errors
A Demat account allows investors to analyze all the holdings they have, and it also tells them how much money is invested in the different asset classes. This reduces the chance of errors, as things are automatically recorded. Such trading is often known as Vanda trades or error trades. This is the largest benefit of the Demat account, as it reduces the error of offline transactions and gives a more accurate record of transactions.
Furthermore, there is an easy transmission of stocks or securities held in one Demat account to another. A Demat account has better liquidity and monetization, which were not possible in the physical form of trading. Also, it enables you to buy or sell as little as one share. The Stop-loss feature of Demat accounts is something more interesting and useful.
Now we have understood how a demat account makes accounting simpler and management easy. And how the transactions are automatically recorded by the depository participant in the Demat account.