Understanding the Concept and Working of a Demat Account

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National Stock Exchange

Dematerialised accounts have transformed and revolutionised Securities Trading. Introduced in India in 1996 by the National Stock Exchange, they have made the process faster, secure, efficient, and convenient. Without these accounts, Trading and investing in securities is tough.

You cannot imagine Stock and Derivatives Trading in the current age without a Demat Account because Indian investors today understand the importance of opening it. The number of account opening applications is increasing every year. The popularity shows how Indians are gradually moving from traditional investments like gold, real estate, and Fixed Deposits to Equities and Derivatives.

1Definition

Contents

A Demat Account allows the investor to store and trade Bonds, Stocks, Mutual Funds, ETFs, and other securities in electronic format. Earlier, you exchanged them through physical certificates, making transactions and storage insecure. However, dematerialised accounts reduced the time for clearing, eliminated fraud cases, attracted investors, reduced brokerage rates, and increased Trading volume, especially in the Equity Market.

All investors must open this account to trade in securities. India’s Securities and Exchange Board requires all companies listed on the Commodity, Stock, and Derivative Exchanges to make their securities electronically available on the respective exchanges.

2Benefits

The Dematerialised Account lets investors perform electronic Trading of Stocks, Bonds, Mutual Funds, Exchange-Traded Funds, etc. It offers several benefits over physical securities Trading. The discovery of security prices is faster and convenient. There is no risk of loss or damage of physical certificates in storage or transportation. Technical and fundamental analysis of securities is possible. The risk of forged share certificates gets eliminated.

Additionally, it reduces the transaction costs without paperwork for securities transfer. Updating the new address is fast and easy as the information updates with the Depository Participant and the companies from where you buy the securities.

3Working

A Demat Account works like a Savings Account. In the latter case, you store cash electronically with the bank. Meanwhile, in the former, you hold shares of various companies affiliated to the National Securities Depository Limited electronically. Credit and debit occur in your Dematerialised Account when you buy or sell shares or securities.

4Participants

NSDL and Central Depository Services Limited are the two depositories formed under the Company Act, 1956 and registered by the SEBI. They have the authority to enrol agents or DPs to provide Demat services to investors. Here are the participants’ lists:

5Bank

It is mandatory to link the Savings Account with the Dematerialised Account to buy securities. The buying and selling of shares occur from here.

6Depository Participant

The DP is a non-broking financial institution authorised by the NSDL or CDSL to handle Demat Accounts on their behalf.

7Depository

Depositories such as the NSDL and CDSL maintain and open the Dematerialised Accounts. They make transactions and update them, act as an intermediary between you and the depository, and hold the account on your behalf.

Keyword: Demat Account

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.