Digitalization is the way forward for most of the services nowadays. Back in those days trading in shares and stocks became a real hassle. So many companies with so much record keeping. The processes before the electronification of share documents were cumbersome and unreliable. Most importantly, people could not trust the entire process.

However, when proper regularizations were introduced through bills and Demat Accounts became the norm, people started trusting the share market. For those of you who do not know what a trading and demat account is, let me clarify things for you.

A dematerialized or Demat account is an electronic record keeper of all your transactions relating to investments in stocks, shares, etc. Instead of searching through thousands of documents stored incoherently at various places, find every transaction in one place.

Demat accounts save time and increase your efficiencies as an investor. You can quickly buy the best shares and sell them off at your whims. Every transaction is stored in your history and thus accounted for. Moreover, you are only to buy pre-approved shares cleared by depositories. Thus, Demat Accounts have made investments safe, fast, secured, trustworthy, convenient, and transparent.

How does a Demat Account work?

A Demat Account is your portfolio where you hold all your securities. When you buy a new share, your purchase is first cleared by clearinghouses. After this is done, the stock you purchase will sync automatically with your Demat Account.

There are two Demat service providers in India ie., one is the Central Depository Services Limited known as the CDSL, and the other is National Securities Depository Services Limited (NSDL). Always remember that you can only buy and sell those shares that are preapproved by these service providers.

What are the factors that you should check before opening a Demat Account?

?     Track record - You need to check if the institution has a strong & diversified business activity or not.

?     Consider the commissions and fees - If you are one of those who keep asking about the ‘best stocks for intraday trading tomorrow’, you need to pay more. The payment of brokerage fees depends on your usage. Brokerage is usually two-fold, one if for intraday traders and the other for long term investors.

?     Minimum Trading Clause - This works much like a minimum balance bank account. If you do not trade for a minimum amount you may be penalized. Check for this clause beforehand before opening your Demat account.

?     Research: aye or ney - Your decisions as to trading shares will become sharper if you follow the research services that many full-service brokers provide. Make sure that you understand the differences between availing full-service providers and discount brokerage platforms.

?     Customer care - No matter how fast your internet works, things don’t take much time before it becomes topsy turvy. It’s better to have customer-friendly connections and intermediaries between your money and the stock market.

?     Physical branches - You may be one of them who loves to check out the atmosphere of the physical offices of your brokers. Well, suit yourself because that may as well be your priority. Check if you can get in touch with an executive or company representatives.

Can I do without having any Demat Account?

The shortest answer to that would be a resounding ‘No’. However, it is important to clarify some of the things associated with this thought process. Having a demat account and trading account is not only mandatory but is highly beneficial for you. Moreover, people do not deal with physical shares any more. People trust NSDL and CDSL because they approve only those companies to be listed that are trustworthy.

However, you can always deal with derivatives,  exchange-traded funds, commodities, and currency without having any Demat account.

The crucial factor why the distinction exists is because the shares are deliverable assets and hence need a place where it could be delivered. However, with derivatives and all you can deal in cash.

What are the important terms associated with Demat Accounts?

Rematerialization - We all know about dematerialized securities because that’s what Demat accounts are. However, you can submit an RRF or a Rematerialization Request Form with the appropriate depository to have your electronic records converted into physical form.

Nominee - Shares or stocks are part of your assets at the time of your death. Therefore, you can and you should choose someone as your rightful nominee. Choosing a nominee would mean that your named person will receive all the gains of your shares/stocks after your death.

‘Investing’ or ‘Investments’ - Demat Accounts are used by new and old investors alike. People invest in SIP (Systematic Investment Plans), bonds, stocks, shares, mutual funds, government securities, IPOs or initial public offerings, etc. 

Monitoring or tracking your portfolio - Previously tracking your investments throughout the day was excruciatingly difficult. With Demat Accounts managing your portfolio has come to your fingertips. Now you can monitor and track every movement wherever you are. All you need is a stable internet connection. Demat Accounts are accessible from tablets, mobile phone devices, laptops, etc. at all times, 24 X 7.

Demat Accounts function just like social media accounts. Find out what happened within your portfolio simply by logging into your account. Once you start tracking minute changes throughout the day, you will be able to make better decisions with what you should do with your investments.

Periodic statements - Just like bank accounts, you can also get periodic statements of your Demat account. You can choose to have your periodic statements mailed to your registered address or have it delivered in your registered E-Mail address.

Benefits and Actions - They are two separate words meaning similar aspects of the Demat account but are not the same. Demat accounts are usually always linked with your bank accounts. So every time you earn dividends, the money can be easily sent to your bank by the company concerned. This reduces the costs of operations.

Moreover, Actions are the benefits that some companies offer to investors like bonuses, rights, information of listed shareholders, etc. are available directly from the investor’s Demat account.

Transmission - Having a nominee is essential, because your shares are part of your assets. When you choose someone as your nominee, all gains arising out of your investments will move into the account of the nominated beneficiary. Make sure you understand everything about these things before choosing nominees. LKP Securities not only provide the lowest brokerage trading account but also advise clients that counts!