Demat account: Features and Benefits

by Arjit Chalmela Finance Student

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In olden times, trades in shares and securities used to happen using the public outcry method. This meant that brokers used to call out the prices for each company and then settle it when they found the right price. When the country shifted to electronic screen based trading, the physical securities were dematerialized into their electronic form. The account to store these dematerialized securities and shares is called the demat account.

A demat account has become mandatory to have in these digital times. It enables a person to conduct screen based trading and acts as a link between the trading account and the stock exchange’s order matching mechanism.

But before you open your own demat account, here is everything you need to know about it.

Features of Demat account:

A demat account is like a bank account. New purchases are credited to the demat account and sales or buybacks are debited to the demat account. It is possible to check the balance in the demat account at any point of time.
The demat account can hold zero balance as well. Till the time the holder does not trade or invest in an initial public offer, there will be nothing credited in the account.
Shares, mutual funds, bonds, debentures can all be held in a demat account.
A demat account facilitates very easy share transfers. It is convenient to trace bonus issues, rights issues, buybacks etc when you have a demat account. The communication with the company stays extremely clear.
This account has a nomination facility. In case the account holder dies, the account has to be closed and the instruments held in the demat account get credited to the nominee’s account.
It is possible to use the balance in a demat account to get a loan. These instruments like equity shares can be pledged to get a loan.
These accounts can be accessed online and offline. If your trading account is maintained with a different entity, you need to fill in a delivery instruction slip to facilitate transfer of shares from the demat account to the trading account. However, NSDL offers this facility online instead of offline making it convenient for the users.

Benefits of Demat account:

A demat account provides safety in terms of instruments. There is no risk of physical damage to the instruments since they are directly credited or debited. There is no chance of any theft or cost of physical storage.
The cost of managing a demat account is also low. The demat account has an annual maintenance charge that has to be paid.

The biggest benefit of having a demat account is that you can trade in odd lots like 1 share or 13 shares. The order matching mechanism of the exchange ensures the orders are fulfilled.