Stock trading refers to buying and selling securities on the stock exchange. If you wish to invest or trade in equities and stocks, you are required to set up a Demat account.
Although operating a Demat account does not require you to take the help of a broker, you need to open a trading account to participate in stock market transactions. For this, you need the assistance of a broker or sub-broker registered with SEBI (Securities Exchange Board of India).
What Is A Demat Account?
A Demat account, also known as a de-materialized account, is a mandatory account an individual has to open to trade in stocks and equities, as SEBI has banned the physical transfer of shares completely. The emergence of Demat accounts revolutionized the face and functioning of stock markets since its establishment in 1996.
A Demat account holds your purchased securities in one place in an electronic format until you sell them. Most investors buy stocks that lie in their accounts for a long time as a long-term investment.
These stocks, stored in an electronic form, are then sold to yield profits seamlessly through the individual's trading account. Registration of all Demat accounts with the NDSL (National Depository Services Limited) or the CDSL (Central Depository Services Limited), who supervise all transactions, is mandatory.
The top-tier authentication format ensures the utmost safety of procured shared from various fraudulence, theft, and scams. To confirm and complete every transaction, the account holder has to quote the Demat account number to enable electronic settlements. Want to know more about Demat accounts? Upstox had broken it all down for you.
What Is The Purpose Of A Demat Account?
As mentioned earlier, the purpose of a Demat account is to hold the purchased stocks of the account holder in an e-format. An account linked with a trading account facilitates smooth stock market transactions.
Opening a Demat account with a renowned brokerage firm connects it automatically to the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange), allowing you to procure and sell mutual funds, stocks, equities, and other commodities listed on the stock exchange.
Long-term investors who purchase securities for extended periods may notice mysterious debits from their trading accounts in the absence of safety checks and measures undertaken to ensure the safety of the Demat account. Stock market transactions are seamlessly carried out online through these accounts displaying the brokerage charges and the like, offering complete transparency.
However, investors must watch over their accounts to ensure that the profits earned through trading are not spent needlessly on undisclosed charges.
Features Of A Demat Account
- Maintenance of physical purchase certificates of stocks and monitoring their performance is a tedious job made easy with the emergence of de-materialized accounts.
- Demat accounts cut out the maintenance costs involved in the maintenance of physical certificates, like handling charges or stamp duties.
- The chances of theft, misplacement, bad deliveries and damage of physical certificates are negated with Demat accounts as it holds purchased securities in an electronic format.
- Demat accounts also do away with the bulk of paperwork involved in stock market transactions. They also make room for settlements of odd lots, a previously complex problem.
Is Demat Account Safe In India?
The safety of money and investments is the priority of every investor. Before entering the stock market, one must consider the security of their investments. Is the Demat account safe? This is the most crucial question in the minds of potential investors. It is established that a Demat account is mandatory for transactions of securities online.
How safe is Demat account depends majorly on the depository participant (DP) with which you open it. DPs are stock brokers who are registered either with the NDSL or the CDSL. These depositories are further supported and regulated by the NSE and BSE. Above all is SEBI regulating the entire structure.
The vigilance of SEBI keeps frauds and scams at bay, ensuring a smooth flow of transactions in the stock market. The regulations and guidelines by SEBI ensure the security of your account. SEBI also guarantees its clients' safety by ensuring they are not forced to sign a Power of Attorney (POA), which gives stockbrokers the right to sell their securities and utilize them for marginal requirements.
Since the POA is not mandatory for a Demat account, the account holder has absolute control over his account and holdings. Thus, Demat accounts are safe in India.
Choosing The Best Demat Account In India
The safety and service quality of your Demat account is greatly dependent on the DP with which you open your account. Choosing a DP that provides both trading and Demat account services offers a lot of conveniences as you can access both accounts from the same portal. Linked Demat and trading accounts also facilitate transactions.
Before opting for a DP, do your homework and conduct thorough research of the service history of the depositories. Compare and contrast the costs and expenses involved and pick the best and safe Demat account in India. Choose one at the top of its game and offers absolute transparency to its clients regarding costs.
Conclusion
Embark on your investment journey immediately and open your Demat account as it is safe and ensures ease of transaction to investors. With such convenience at your disposal with a Demat account, your investment journey will be smooth.