Investing in the stock market is lucrative because it delivers the highest returns when held for the long-term. Historically, shares were held as physical certificates but now if you want to invest in equities you need to hold the shares in an electronic form.
This requires you to open a dematerialization account prior to stock investing. In addition to holding shares, you may hold other investments like fixed deposits, government securities, corporate bonds, mutual funds, and exchange-traded funds in this account.
Before you decide to open a demat account, you need to understand the meaning of such an account.
Understanding a Demat Account
It is an electronic account that is opened with a registered Depository Participant (DP). The DP is associated with one of the two depositories namely the Central Depository Services Limited (CDSL) or the National Securities Depository Limited (NSDL). The account will hold your investments in an electronic form until you sell these.
How to Open a Demat Account?
The procedure for demat account opening is simple and quick. Here is a step-wise guide to open an account:
- Choose your DP; most financial institutions offer such services
- Complete the account opening form and attach the required documents
- Procure the rules and regulations and sign the terms of agreements and the charges
- A representative will do an in-person verification
- On successful processing, you receive your client ID or the account number
When you avail of a dematerialization account, you need to pay some fees and charges. Here is the list of such charges:
- Annual maintenance charges (AMC)
- Transaction charges
- Dematerialization and rematerialization charges
- Pledge charges
- Failed instructions charges
- Others costs such as fax indemnity and renewal charges
Having understood about opening an account and its associated charges, here are five benefits of a dematerialization account:
1. Lower Risks
When you hold investments in the physical form, there is a risk of damage, theft, or loss. All these risks are eliminated when you hold your investments in an electronic form.
2. Quicker Processing
Transferring physical certificates is a long and cumbersome process. With electronic transfers, there is no paperwork involved, which ensures the transactions are completed quicker.
You may access your account from any place at any time through a laptop, smartphone, or computer. This makes it convenient to invest especially while on the go.
4. Automated Corporate Actions and Benefits
Corporate actions and benefits such as the issue of bonus or right shares, dividends, interests, and refunds, are all automatically completed and reflected in your account.
5. Reduce Costs
When you transfer physical certificates, you need to pay stamp duty charges. These charges are not applicable when you transact electronically, which reduces the overall transaction expenses.
6. Odd Lot
A physical certificate has a specific number of transactions of the shares. With the dematerialization account, you may buy and sell any number of securities without worrying about an odd lot.
Before you open an account, here are some things you need to check:
- Broker credentials and reliability
- Brokerage and other charges
- Reliability of the trading platform
- Customer support services
- Research and analytics
Dematerialization has made it easier, convenient, and safer to invest in the stock market. If you still do not have an account, get one today.