What is a Demat account and how to use it?

by Pankhudi Dave Head Finance Manager

Investing in equity shares in physical form entails a lengthy procedure, a lot of paperwork and risk of getting fake shares. For keeping the entire experience easy and streamlined, an investor will need a demat account. While trading online, a Demat account will be used for holding shares and securities in a dematerialized or electronic format. A Demat account has become the necessary thing in case an investor decides to invest in stock markets. It makes the process of trading safe and fast. Before beginning the process of investing it is important for an investor to understand what is demat account and how it functions, so they will be able to use it efficiently for generating profits. An investor can open a Demat account without possessing any shares and can maintain a zero balance in their account.

A demat account has similar functions to that of a bank account. In a bank account, an account holder may hold the money in account and respective entries will be made in the passbook. In a demat account, instead of money, the securities will be held in an electronic form, from which the credit and debit of securities will take place. Some of the facilities offered by a Demat account are listed below:

1.    Transfer of shares
2.    Loan facility
3.    Dematerialization and Re-materialization
4.    Multiple access options
5.    Corporate actions
6.    Freezing Demat accounts

7. Speed E-facility

How to use a Demat account?

An individual can open their Demat account by registering with an investment broker or a sub-broker. Access to a Demat account requires an active internet connection and a transaction password that is provided after successful opening of a Demat account. The first step in opening a Demat account involves selecting a depository participant who acts as an agent to the depository. It will be followed by filling of the account opening form and submission of identity proof, address proof, PAN card and a passport size photograph. A detailed description of all the acceptable documents can be found on the official website of the financial institution. Once an investor has agreed to the terms of the agreement and charges, an in-person verification is initiated. After the processing of the application is done, post verification, a client ID or an account number is provided. It can be used by an investor to access their Demat account online. An investor can use this account for buying and selling shares, stocks and derivatives and use it as a storehouse for the stock portfolio. With a Demat account, an investor will also need a trading account and a stockbroker for carrying out the purchase of sales of shares. Trading account typically reflects the history of buying and selling in a specific account. It is the duty of the broker to transfer the shares to a Demat account of investor after the amount for purchase is paid before the pay-in date. It is compulsory for an investor to have a Demat account in order to purchase shares as trading equity involves delivery of shares.