What is the importance of a Demat account and how to use it?

SEBI (The Securities and Exchange Board of India) launched the Demat account in 1996 to trade and invest efficiently. Any investor can easily use it by registering himself as an investment broker or a sub-broker. However, a lack of understanding of how to use a Demat account, or best practices for using a Demat account, becomes an issue and doesn’t let us take leverage of the Demat account fully.

Opening a Demat account has several benefits like e-verify your returns, loan against Demat shares.

The only things required to open a Demat account are an active internet connection and transaction password, which the user will get after opening a Demat account successfully and general KYC details.

1> The first step in opening a Demat account requires a selection of depository participants who will act as agents to the depository. This will be trailed by filling out the Opening form and submission of identity proof, address proof, PAN card, and a passport size photograph with a detailed description of all the acceptable documents similar to other account opening procedures. 

After successful processing of the application, post-verification, a client ID or an account number is provided which an investor can use to open his or her Demat account online. 

An investor can then utilize it to trade, buy and sell shares, stocks, and derivatives, and use it as a storehouse for the stock portfolio.

2>  An investor also requires a trading account and a stockbroker to carry out the buy and sell of shares. A trading account reflects the history of purchases and sales. Usually, it takes T+2 days to show credit and debit transactions of shares in a Demat account, post-execution of trade, and later confirmation from the exchange. It is the responsibility of the broker to convey the shares to the Demat account of the investor after the amount of purchase is paid before the pay-in day.

The Best Ways to Use a Demat account:-

1> Gold – In November 2015, the Indian government launched the Sovereign Gold Bond (SGB) as part of the Gold Monetisation Scheme to provide investors best alternative and to rid of hassles by carrying physical gold everywhere with them. The market has seen a significant drop in demand for physical gold as well. By purchasing Sovereign Gold Bonds issued by the Indian government, investors can hold gold in a Demat account. You can buy these bonds either periodically issued by the government or you could buy them via a secondary transaction on the SMC Global App.

2> Physical Share Certificates – If you carry physical share certificates for companies, you can take profit from the benefits of a Demat account by converting them to demat form.

3> Mutual Funds – RTAs (Registrars and Transfer Agents) have traditionally been used to store MF units in a physical form. Nowadays, more than 80% to 90% of units are stored in physical form, preventing investors from making use of the benefits of a Demat account. SMC Global Securities Limited is one of the rare platforms that allows investors to own their units in a Demat account. You have the option of choosing between owning mutual funds in both forms. If you want to convert your existing physical holdings to a dematerialized form, you’ll need to fill out a dematerialization form.

4> Loan Against Demat Shares- The loan you take out against your Demat shares has several elements that set it apart from other types of loans. Here are a few of the most crucial features to be aware of:

You can use your Demat shares as collateral for a loan of up to Rs 20 lakhs.Loans against Demat shares are frequently less expensive than personal loans, with interest rates ranging from 12 to 18 percent per year.Guarantors are not required for loans secured by Demat shares. Furthermore, they usually do not impose any prepayment penalties.Every week, the value of the pledged shares is reviewed.

Can I trade shares without a Demat account?

You’ll need a Demat account if you’re interested in trading. A Demat account is required to trade in the stock market. 

All shares are now held in dematerialized form, which will be reflected in your Demat account. Furthermore, buying and selling stocks in tangible form is complicated. 

The number of agents dealing in physical shares and the number of buyers willing to purchase physical shares is also significantly less compared to individuals transacting in dematerialized securities.

Start Trading in the stock market and build your corpus of wealth for the future. But remember, the first step towards building a stock market strategy is to open a Demat Account

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