Demat accounts have been a prerequisite for trading on the stock exchange over the years. Because share trading these days is virtually exclusively done electronically, demat accounts are essential for smooth operation of the buying and selling of shares. Demat accounts play an important role in trading, but many traders don't know how to use them.
This article will help you identify the features of a demat account. These are the main features of a Demat account.
This is one the most obvious and important features of a demat bank account. You can convert physical shares certificates from companies into electronic formats with a demat account. This is called dematerialization.
To dematerialize shares, all you have to do is to send a request to your Depository Participant. After successful verification, your DP will dematerialize the shares and credit them into your account.
A demat account can be used to not only dematerialize, but also to rematerialize shares in your account.
A demat account is similar as a bank account. A demat account does not hold cash but shares and securities. A demat account is similar to how you can access your bank account online. You can also access and operate it online. You can monitor your investments and view your statements online.
You will receive login credentials when you open a demat bank account. These login credentials can be used to log into your personal account. The demat account can be accessed from anywhere on the planet, as it is electronically stored and hosted online. You only need a computer with an internet connection.
Demat accounts make it easy to transfer shares from one person or another. This is actually one of the main reasons demat accounts have become so popular in such a short time. When physical shares certificates were still available, transfer of shares after a sale or purchase was a lengthy process that could take several months.
Demat accounts make it easy to transfer shares. It takes less than two days to receive your shares after you have made a purchase. Not only that, but it's also possible to transfer shares between demat accounts outside of the stock exchange.
There were many costs associated with physical share certificates. Every trade required a trader to pay a variety of costs, including handling fees and stamp duties. The entire stock trading process was made more complicated by the high transaction costs.
Demat accounts eliminate the need to pay for these ancillary fees. Demat accounts continue to have a significant advantage in reducing costs and simplifying the process of trading shares.
Owners of demat accounts can pledge securities and shares in their accounts to a bank or financial institution to secure a loan. Many stockbrokers allow demat account owners to use securities in their accounts as collateral to facilitate margin trading.
This feature is extremely useful in emergency situations, as it allows people to quickly mobilize funds efficiently and effectively. They can also reduce red tape and the time it takes to get a loan.
You will be asked to link your bank account when you open trading or demat accounts. All of these accounts can be linked together so any corporate action taken by the company through your demat account is automatically credited to your respective accounts.
If the company you hold declares a Dividend, it will automatically be credited to your bank account linked to your demat account. You don't have to do anything, unlike when physical shares certificates were issued. The bonus shares of the company you own are also automatically credited to your demat account if they declare a bonus issue.
This list only covers the most important features of a demat bank account. However, these accounts also have many other benefits. Demat accounts have a few more benefits, such as the ability to temporarily freeze an account or transfer shares in odd numbers. The increasing popularity of the stock exchange has been greatly aided by demat accounts.