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!