The IMF (International Monetary Fund) has projected the growth prospects of India’s economy at 8.2% in the current fiscal year (2022-23). More investors are looking at stock trading to gain considerably with such economic growth, especially millennials, because the stock market has adopted an online trading system. Investors need not visit a stock exchange personally. You just need your demat account to start investing conveniently at home. Let us elaborate more on a demat account.
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Demat Account Meaning
A demat account (abbreviated form of dematerialization) is an online repository with a stock broker where investors hold digital copies of their financial assets. It can be stocks, mutual funds, bonds, government securities, currencies, commodities, or derivatives.
It is like a bank account that keeps your securities secure. Whenever you need to buy or sell securities, you can place a trade on stock exchanges using a trading account.
Is It Mandatory for Stock Trading?
The Securities and Exchanges Board of India (SEBI) made a demat account mandatory to hold and trade securities in the stock market. Following the SEBI guidelines, the investor must convert all physical securities certificates into demat form.
Types of Demat Accounts
Basic Services Demat Account (BSDA)
Due to the burden of investing costs, numerous retail investors do not encash the stock investment opportunities. BSDA is the solution for them. It allows investors to hold stock market investments valued at a maximum of Rs.2 lakhs.
This demat account has reduced the investment cost for small investors as there is no account opening fee. If the value of the holding is less than Rs.50,000, there will be no demat account maintenance charges also. Investors should note that the closing value of the investments in your BSDA should not exceed Rs.2 lakhs on any day. If it exceeds Rs. 2 lakhs at any point in time, the broker can charge for regular demat account services from that day onwards.
An individual can open only one BSDA account. The status of your BSDA can be changed to a regular demat account if your investing needs changes in the future.
Regular Demat Account
A regular demat account is a restriction-free demat account that can hold numerous financial assets without any concern or limit to the holding value. The holding value can be in thousands, lakhs, or crores as per your investing capacity. The main charge of a regular demat account is account maintenance charges (AMC). You can save on AMC with a discount stock broker. Renowned discount brokers facilitate investors with free AMC for the first or two years of opening the demat account. You can open free regular demat and trading accounts with their subscription-based brokerage plans.
Repatriable Demat Account with an NRE Account
NRIs can create a Repatriable Demat Account to invest in the Indian stock market. They need a Non-Resident External (NRE) bank account to open a repatriable demat account. This bank account helps NRIs to transfer funds to foreign countries. It is allowed to open a joint account with an Indian citizen. NRI demat accounts have a nomination facility also.
- Non-Repatriable Demat Account with NRO Account
A non-Repatriable Demat Account is available for NRIs with a Non-Resident Ordinary (NRO) bank account. This account does not allow investors to transfer funds abroad. NRI investing rules are mentioned in the Foreign Exchange Management Act (FEMA).
Open demat account online with a discount stock broker as per your investing needs.
How to Use an Online Demat Account in India
- Open the demat account with a stockbroker following an online process to submit the required personal details and KYC documents. The broker will activate your demat account.
- Log in to your online demat account with your unique demat account number or client ID provided by your stock broker. It will show you all your demat holdings in your portfolio.
- You can open trading and demat accounts using the same account opening form for free. You need to link your trading account with your demat and bank accounts.
- You must request a trade order by logging in to your trading account to buy or sell securities. Your broker will forward your order to the relevant stock exchange to execute your trade electronically.
- After a successful transaction, you will receive your securities in your Demat account. If it is a sell trade, your demat account will be debuted with the same number of securities.
The broker and the depository will send you a confirmation email and SMS.
Thus, you can use the demat account to:
- To hold all your securities in the stock market conveniently irrespective of timeframe.
- To check the share market updates live.
- To monitor the performance of your investments if they are aligned with your investing goals or not.
- To receive your corporate benefits, like, bonus shares, splits, dividends, refunds, etc.