Benefits & Features of a Demat Account in India 2024

The process of converting physical certificates of securities that a trader purchases from the stock market to electronic form is called dematerialisation. You must have a Demat account to hold and access these electronic certificates.

The Securities and Exchange Board of India (SEBI) has made it mandatory for every investor/trader in the Indian stock market to hold a Demat account. Since their introduction in 1996, Demat accounts have enabled the digitisation of our stock market and eliminated the hassles of storage and paperwork involved with physical securities.

This blog will take you through the features, benefits/advantages and disadvantages of a Demat account in India.

What Is a Demat Account?

Similar to your savings account, a Demat account is an account that stores shares, ETFs, bonds, government securities, mutual funds, futures and options. These accounts hold such securities in the digital format and allow easy online trading via a trading account with a broker. Investors can also keep track of their investments through their Demat accounts.

Since its inception, Demat accounts have revolutionised trading in the Indian stock market. Because of demat accounts, you do not need to worry about holding physical certificates of your stocks, which can easily get damaged, lost or stolen. You can also convert physical share certificates into their dematerialised format at your convenience.

Types of Demat Accounts in India:

1. Regular Demat Account

A regular demat account is one where you can hold your investments in equities. You must have a trading account and a regular demat account to trade futures and options.

2. Repatriable Demat Account

A repatriable demat account is designed for NRIs through which they can invest in Indian stock markets and facilitates the transfer of up to $1 million annually outside India.

3. Non-repatriable Demat Account

A non-repatriable demat account is also for NRIs but is linked to NRO (Non-resident ordinary) account and does not facilitate the transfer of funds outside India.

What Are the Benefits of a Demat Account?

Besides the above features, here are the benefits of having a Demat account:

• Cost Effective as compared to physical trading

Unlike physical trading, Demat accounts are comparatively cost-effective. You only need to pay specific charges to maintain the Demat account. These charges are applied periodically. 

Therefore, consider studying the additional charges of your DP before choosing one. This way, you can save a good amount of money from additional costs for a Demat account. 

• Prevents Theft and Losses

Traders risk falling victim to theft or fraudulent activities if they use physical certificates of securities. In contrast, depositories monitor transactions between traders and companies via Demat accounts through depository participants. This reduces the risk of theft or fraud to a considerably low level.

Furthermore, this account holds all your transaction information in digital format. As a result, you will always keep track of your securities.

• Allows Global Investments

Demat accounts promote a digitised trading approach. This platform allows NRIs and foreign traders to invest in the Indian stock market.  This helps the proliferation of the Indian economy. 

• Facilitates Quick Transactions

Before Demat accounts, buying and selling securities was an elaborate process and took several days. However, with the help of Demat accounts, security transactions can happen in a few minutes without much hassle. 

• Access to debt

You can use the securities in your Demat account to get leverage from your broker. Thus, using securities held in your Demat account to borrow funds can increase your positions and the potential for profits.

• Easy Record of Documents

In physical trading, you need to record all your transaction to keep a check manually. But, with a demat account, you can access all your P&L Statements, Balance sheets, and all other data hassle-free.

• Hold Multiple Securities in a single demat account.

 With a demat account, you can organise all your investments in bonds, equities, mutual funds, and other securities in one place. This makes it easy for you to keep track of your assets.

What Are the Features of a Demat Account?

Let’s look at the features of Demat accounts that make trading hassle-free and seamless.  

• 24-hour Access

As Demat is a digital account, you can access it anytime from your mobile phone or PC and trade using net banking. You can also check your account statement and holdings and make transactions.

You can open your Demat account via your depository participant’s app or website on your smartphone or mobile. 

• Hassle-free Holding of Shares

With a Demat account, you can leave behind worrying about safely holding your shares, mutual funds and other assets. This account stores shares securely in electronic format. This reduces the chances of misplacing your shares.

• Fewer Risks Involved

Physical securities are more prone to theft and damage, so trading with them is relatively risky. However, a Demat account ensures the complete safety of your securities as you do not need to hold or trade with them physically. Furthermore, it keeps the securities safe in an online repository so that only you can access them.

• Freezing Demat Account

Demat account holders have the power to freeze specific quantities or types of securities for a certain period. Using this facility, they can stop any unauthorised transfer of securities.

• Quick Receiving of Dividends and Other Compensations

Before Demat accounts, the transfer of dividends and interests from companies to shareholders was a time-consuming process. However, since its introduction, the transfer of dividends happens instantly, requiring no input from the investor. Bonus issues, stock splits, refunds etc., are also credited automatically.

What are the Disadvantages of a Demat Account?

• Technologically Competent

Trading in the present times has become electronic, unlike in the past when everything was done manually. It becomes challenging for technologically incompetent people to understand the complexity of using a demat account to trade.

• Annual Maintainance Charges

Demat account holders need to pay additional annual maintenance charges. Even if you hold a single unit of any share, it becomes a burden on you to bear the costs.

• Trading at a Higher Frequency

With the dematerialisation of shares, trading has become hassle-free with just one click. Though this is an advantage, you can check your profit and losses anytime and sell accordingly. This leads to short-term trading, and an investor tends to lose the opportunity for long-term investments.

Things to Consider While Opening a Demat Account

Before opening a Demat account, keep certain things in mind.

• Know the Additional Charges 

You must pay additional charges like AMC (Annual Maintenance Charges) and transaction fees to hold, manage and trade using your Demat account. These charges are compulsory. However, their value may vary between depository participants. 

Therefore, consider knowing these additional charges before choosing a depository participant to open a Demat account. You can opt for brokers with low or minimal additional fees so that maintaining a Demat account does not burden your finances. 

Furthermore, many depository participants don’t charge maintenance fees during the first year of account opening. You can research such offers from brokers and choose a depository participant to open a Demat account.

• Know your Financial Motives And Goals 

Demat account ensures safe and smooth trading in stocks and other securities. SEBI has made it mandatory for investors who wish to purchase and hold stocks to open a Demat account. This makes having a Demat account necessary for investing in stocks.

Before opening a Demat account, you must clear your trading goals. Holding a Demat account might become an extra liability without a clear idea. You may have to pay the necessary charges to keep your account active. You may not need a Demat account if you want to invest in electronic securities.

• Open Demat and Trading Accounts with the Same Broker

Traders must also have a trading account and a Demat account to participate in the share market. Opening these accounts with the same depository participant makes trading more convenient and simple. 

It also saves you from the hassles and consequences if one of your DP does not hold a licence. In such cases, you must present a Debit Instruction Slip (DIS) for every transaction with different brokers. You must do so to avoid losses and bad delivery.  

Today, most stockbrokers allow you to open trading-cum-Demat accounts to save time. But before you choose a DP, thoroughly research their platform and service quality.

Final Words 

A Demat account eliminates the role of intermediaries and makes trading in the Indian stock market convenient and hassle-free. The benefits and features of a Demat account highlight its importance for traders to purchase, hold and sell securities anytime. Do not share your Demat account credentials with anyone to ensure safe trading practices.

Frequently Asked Questions