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Basics Of Demat Account & Dematerialization Simplified For You!

If you want to understand Demat Account’s meaning, it is important to understand what dematerialization stands for. Dematerialization refers to a process in which your physical share certificates are converted by your Depository Participant (DP) into the electronic form.  For a brief definition of D

demat account
demat account

If you want to understand Demat Account’s meaning, it is important to understand what dematerialization stands for. Dematerialization refers to a process in which your physical share certificates are converted by your Depository Participant (DP) into the electronic form.

For a brief definition of Demat Account –

It is the account in which the electronic equities are held for trading or monitoring is known as a Demat Account. It consists of all the investments you make in the form of stocks exchange funds, mutual funds, government securities, shares, bonds, etc. stored in one place. Through this Demat Account, you can continue your transactions of buying new shares or selling the existing ones.

In other words, facilitating transactions resembling a typical bank account but, in this case, for equities is what we understand from a Demat Account meaning.

How To Open A Demat Account

The process of opening a Demat Account is quite simple and transparent. Given below is the step by step process following which you will be successfully able to open for yourself a Demat Account.

  • You first have to choose the financial institution or depository with whom you would like to open your Demat Account.
  • Once chosen, you will have to assign for yourself a Depository Participant (DP) who acts as an agent or mediator between you and the depository. You should choose on the basis of the compatibility of your meeting the charges of the DP for his or her services.
  • Then you will be required to submit an application form filling out all the necessary details and attaching along with it the relevant documents required such as PAN card, address proof and other identity details.
  • Prior to the Demat Account to be finally opened, you will be asked by your DP to sign an agreement which will include all the terms and conditions with which both you and your DP have to align with.
  • Following this, you will be assigned a client identification number which you will be needing for all your future transactions.

Following these steps, you will have successfully opened your Demat Account. It is also important to note that a Demat Account can be maintained with zero balance as well.

Benefits Of Demat Account

A Demat Account meaning would become nil if it does nothing more than converting the equities from physical to electronic format. For why then an investor would even bother to waste his time in undergoing the process of converting his shares? So, it must be that a Demat Account offers a number of advantages that lures the investor to opt for opening a Demat Account in the first place.

With a Demat Account, you can monitor your data from anywhere. SOURCE: Pixabay

The following are some of the benefits which a Demat Account provides to its user.

  • You can access your equities from anywhere. The electronic shares allow you the option to access them through a computer, mobile phone or a tablet. This makes it easier for you to monitor your account activities, and constantly be in a position to make effective decisions anytime regarding your shares.
  • Physical share certificates run the risk of being damaged or lost. With the help of a Demat Account, you can be assured of the security of your securities.
  • As physical share certificates can be converted into an electronic format through the process known as dematerialization, it by no means implies that you cannot reverse the process. Rematerialization is the process of reconverting the electronic stock into the physical format. Therefore, a Demat Account allows you the option of both dematerialization and rematerialization.
  • You can freeze your Demat Account for a certain time to prevent any unwanted reduction from your account. Though it may be the case that you will need to maintain a certain amount of securities in your Demat Account before you can freeze it.
  • A Demat Account saves time by directly crediting the dividends or profits as received from your investments.
  • Enables a faster way to sell your shares and convert them into money.
  • A Demat Account remains updated regarding various issues, rights and other such important information.
  • Purchase or sell of share has also become easier and quicker with a Demat Account. With physical stock, any transaction would usually involve a longer time period to be reflected in your account in comparison to a Demat Account.
  • No stamp duty fee has to be paid for the transfer of shares.
  • You can also avail a loan for yourself by keeping your shares in a Demat Account as collateral.

A Demat Account meaning for you, thus, would be to continue investing with better and more benefits than previously.

Demat Account Charges

There are a certain amount of charges which you may have to pay for opening and maintaining a Demat Account. Some of them are as follows:

Opening Charges

Some financial institutions charge a nominal fee for opening a Demat Account, while others do not charge an opening account fee. With some of these institutions, the opening fee is also refundable – it will be returned to you once you close your Demat Account.

Custodian Fee

Before having a Demat Account, an investor would have to be responsible for the safety of physical share certificates. In the case of a Demat Account, however, the responsibility is shifted to the DP. He is entitled to be a guardian of your securities and to make sure that they are not harmed in any way. For providing this service, the DP charges a nominal custodian fee. The Custodian fee is either a one-time charge or it is not charged at all, depending upon the broker.

Account Maintenance Charge

Account Maintenance Charge, also known as Annual Maintenance Charge (AMC).is a specific amount of fee charged by DP annually for the maintenance of your Demat Account. Variations are to be found in AMC in the sense that some do not charge any fee for the first year, while some do not demand an AMC provided you exceed the standard limit of transactions.

Transaction Fee

The DP charges a transaction fee every time you purchase or sell shares. Charges can either be made on the number of translations you make or directly on a monthly basis. It is also the case with some DPs that they charge only when you sell your shares, while others charge on both buying and selling.

To conclude, once you know the Demat Account meaning, you begin to see the advantages it offers over the physical mode of stock. The only thing for you to negotiate then would be which DP and institution to opt for: based upon your own compatibility regarding the services and the charges levied by a particular DP. Once that is figured out, the rest would be smoothness and effectiveness.

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Daniel Jack

For Daniel, journalism is a way of life. He lives and breathes art and anything even remotely related to it. Politics, Cinema, books, music, fashion are a part of his lifestyle.