Why are Investors Required To Open a Demat Account?
If you want to invest in the stock market, opening a demat account will be your first step. It is because it is not possible to invest in a wide range of securities without a demat account. You can open a demat account these days without any issues. The option of uploading documents and completing the verification is also provided online these days. A demat account is primarily used to hold the securities that you buy. The other reasons that make it an integral part of trading are explained below:
Investing in IPOs
A demat account allows you to invest in IPOs. Whenever a company launches its IPO in the market, it will be reflected in your demat account. You can book your IPO slot from the demat account without any assistance of the broker. If your bid is successful, you will be notified via an email and the IPO stocks will be delivered to your demat account. If the bid is unsuccessful, the money will be transferred back to your demat account.
Security reasons
Holding securities in physical form can be quite challenging. Physical documents are not only susceptible to damages but they can also be misplaced or stolen. To avoid these uncertainties, you can open a demat account. A demat account holds your securities in electronic format. You can dematerialize your paper certificates with the help of a demat account. If you need the physical copies of the share certificates, it can also be done via your demat account through a process called rematerialization.
Time-saving option
Trading through a demat account is a time-saving option. You can buy or sell securities in real time if you have a demat account. Moreover, you don’t have to rely on a broker while transacting through a demat account. Once you buy shares, they get reflected in your account on T+2 day. The same rule applies while selling the shares. Even the transfer of shares from one demat account to another can be done seamlessly through a DIS (Delivery Instruction Slip).
Loan against holdings
Many banks allow you to apply for a loan against your holdings in the demat account. The loan amount can vary as per the value of shares that you hold in the demat account. This loan can help you in a financial crisis or emergency.
Easy access to trading
These days, depository participants like brokerage firms offer web applications for trading. You may also download their mobile trading apps to trade seamlessly from any corner of the world. Therefore, having a demat account eliminates the geographical barriers and helps you to trade conveniently. You can purchase or sell shares online from any part of the world and earn a profit.
Access to multiple securities
With a demat account, you can invest in stocks, mutual funds, Futures and Options, currencies, commodities, and various other market segments. You can hold all these securities in a single demat account. However, if you plan to open multiple demat accounts for different types of securities, you can do that as well.
Even a minor can open a demat account under the supervision of a legal guardian or parent. Take factors like brokerage, annual maintenance charges, trading accuracy offered by the platform, etc. before choosing a trading platform. A modern and intuitive trading platform that allows you to seamlessly trade in multiple securities can be ideal for your long-term investment plans. Opening multiple demat accounts also means that you have to pay a higher AMC and other charges.