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A demat account also known as dematerialized account because it stores your securities in electronic form. It works like a single platform to hold stocks, mutual funds, ETFs (Exchange Traded Funds), and bonds.
You need a demat account to participate in online trading. You can trade in futures and options without a demat account as no delivery of trade required in it. However, you need a trading account for it. The demat services regulated by the central depositories viz. NSDL and CDSL. The DP (Depository Participants) need to register with these depositories to provide demat services and they communicate with investors on the behalf of their customers. Therefore, to open a demat account, you must contact a DP first. The online demat account opening process is provided by most DPs these days.
These are the benefits of opening a demat account with a competent broker:
All the shares, bonds, mutual funds, ETFs (Exchange Traded Funds), and other securities in which you invest can be safely held in a single demat account. Therefore, you don’t need multiple demat accounts to invest in different financial instruments offered by the stock market.
As securities held and transacted digitally through a demat account, there is no need for paperwork while buying and selling them. This negates the need for paying stamp duty charges which were applicable when the shares traded physically.
As trades settled electronically, a lesser time required for the shares to credited to your demat account. Trades settled in T+2 days irrespective of whether you buy or sell the stocks. This has made the entire trading process much faster.
Also, you can buy and sell shares conveniently through a mobile app these days. It allows you to take advantage of fluctuating stock prices through intraday or swing trading. The use of data analytical tools and trading charts helps you to fine-tune your trading strategies.
It is possible to transfer securities without any paperwork by using CDSL’s Easiest or NSDL’s Speed-e facility. However, you need to register on their official websites to avail this facility.
Electronic securities are not susceptible to damage like physical ones. As electronic securities cannot replicated like physical certificates, it automatically reduces the chances of fake or duplicate share certificates.
Also, they cannot stolen by fraudsters. Stockbrokers also use the latest technologies like data encryption to keep their securities safe from online intruders.
With a demat account, it is possible to purchase or sell even one share. This flexibility was unavailable with physical share certificates as it was not feasible to process multiple documents for a few shares. Therefore, the shares allocated in lots on those days.
Trading and investing have become a lot easier due to the integration of the latest technologies in stock market trading. For example, you can track the live movement of stock prices using charts. Also, it is possible to maintain a watchlist containing multiple stocks to track their current positions.
You can study the fundamentals of any stock online through the reports created by experts. Access to quarterly financial reports of companies enables you to evaluate their potential to grow and provide returns. All these things allow you to create comprehensive trading and investment strategies.