How to use a Demat Account

What is a Demat Account?

A Demat account is an electronic repository that holds securities in a digital form. Before Demat accounts were introduced in 1996, investors and traders had to deal with physical share certificates. A Demat account eliminates these inconveniences by holding all securities digitally.

SEBI-authorized Depository Participants (DPs) open demat accounts for investors.  DPs (such as NSDL or CDSL) act as intermediaries between investors and depositories and facilitate Demat account opening and maintenance of electronic holdings. 

What is the Use of a Demat Account?

Having stocks, mutual funds, bonds, government securities, ETFs, and more in electronic format with a Demat account reduces the hassle of storing actual share certificates and securities. It secures your portfolio and centralizes your investment. Demat accounts offer easy security monitoring, prompt trading, automated crediting of dividends, and smooth transfer of securities.

A unified picture of portfolio performance and live-holding values helps you make data-driven investing choices. Investors choose Demat accounts over physical securities because they provide fast trading, security, and ease of management.

How to Use a Demat Account?

A Demat account makes managing your assets easier and ensures safety. Here is how you can use a Demat account:

• Step 1 (Open a Demat Account): For opening a demat account, investors must first select a Depository Participant. After choosing the DP, you must fill out the Demat account opening form online by submitting personal, bank account, and other information, Some DPs offers AMC free demat account to start investment easily.
• Step 2 (Access the Demat Account): An in-person verification process is started as soon as the investor accepts the conditions of the agreement and the costs. After the application is processed successfully and verified, a client ID or account number is issued. The investor can use this to log into their Demat account online. 
• Step 3 (Understand the Basic): By logging in with your unique credentials, you can conveniently access your Demat account via the DP website or mobile application. The system offers users the ability to consolidate their entire portfolio, verify current values using real-time market rates, obtain account statements, trace transactions, and more. These features are highly beneficial for investment monitoring.
• Step 4 (Trading): To buy or sell shares, an investor needs a Trading account in addition to Demat account and a stockbroker. Buying and selling activity inside a particular account is usually reflected in a trading account. After a deal is executed and the exchange confirms it, it takes T+1 days for the credit or debit of shares to appear in a Demat account. 

Can I Trade Shares without a Demat Account?

Without a Demat Account, it is impossible to trade stocks. A Demat (dematerialized) account is mandatory for saving all your traded and invested securities in India. This is due to the fact that shares are now only offered electronically or in a dematerialized form, meaning they are stored in your Demat Account.

As per regulations, shares need to be held in digital form, and transactions can only occur between two demat accounts. Consider it your shares' digital safe deposit box, just like a bank account does. 

What is Share Allocation?

The procedure by which companies distribute or allocate a predetermined quantity of shares to applicants during equity offerings is referred to as share allocation. It occurs during subsequent public offerings (FPOs), rights issues, incentive issues, and initial public offerings (IPOs).

Upon receiving applications during the tendering window, the issuer company allocates shares in accordance with the predetermined premise of allotment in an IPO. This determines the quantity of shares allocated to each category of bidders. Allocation occurs proportionally when demand exceeds supply in the event of oversubscription. There are numerous laws that require companies to disclose in advance the maximum number of shares that may be issued and the duration of allocation validity.

Important Terms Associated with the Demat Account

When trading securities, investors of all caliber must know these important terms associated with the Demat account:

• Dematerialization: The procedure by which certificates of securities are converted to digital format in order to be stored in a demat account.
• Depository Participant: A DP is a firm and agent of the depository that facilitates transactions and stores investors' electronic securities. In India, the two principal depositories are NSDL and CDSL.
• Beneficial Owner (BO): The individual who possesses ownership of the securities in the demat account. BO possesses authority over account operations and portfolio transactions.
• Trading Account: Utilized to execute purchase and sell orders on the securities market. Continually maintained relationships with stock brokers and incorporated demat accounts for transaction settlement.
• Power of Attorney (POA): BO has granted DP authorization to act on behalf of the investor to facilitate account operations and portfolio transactions.
• Intraday Trading: Buy/sell securities on the same day with the intent of profiting from price fluctuations.

Conclusion

A single Demat account may be used by investors to make investments in a variety of financial goods. Using a Demat account, one may also invest in systematic investment programs and initial public offerings (IPOs). To make the most of it, investors must know how to use a Demat account and the terms associated with it.