A demat account for trading is essential to invest in the Indian stock market. It can hold stocks, bonds, government securities, ETFs, mutual funds, and other securities that you invest in. You need to open a demat account with a DP (Depository Participant) who is registered with CDSL and NSDL, the major depositories of the Indian stock market. 

Types of demat account:

Before opening a demat account you should know its types. The citizens of India can open a regular demat account through a DP. The demat account charges for a regular account depend upon the services that you subscribe to, the brokerage charged by the broker, and the volume of securities held in your demat account. It also includes AMC (Annual Maintenance Charge), operation costs, custodian fees, and other demat charges. 

However, if you don’t engage in trading frequently, you can open a BSDA (Basic Services Demat Account).  No AMC charges are levied if your holding value is less than Rs. 50,000. If your holding value lies between Rs. 5,00,000 and Rs. 2,00,000, a nominal AMC is charged. However, no concession is provided on brokerage and taxes irrespective of whether you have a BDSA or regular demat account. 

NRIs who have NRE (Non-Resident External Account) can open a repatriable demat account and invest in the Indian stock market from any part of the world. It allows them to get the funds lying in their demat account transferred to a foreign bank. In case the NRIs have an NRO (Non-Resident Ordinary) account, they can open a non-repatriable demat account. However, it is not possible to transfer the funds to a foreign bank from a non-repatriable demat account. 

Reasons to open a demat account:

The following reasons highlight the importance of opening a demat account:

Facilitates smooth and streamlined trading: 

As a demat account facilitates an electronic trading system, the transactions are smooth and seamless. Each and every trade is recorded automatically in this system. Also, you can monitor the trades any time by downloading a detailed account statement. These features allow you to carry out trading in a streamlined way. 

Faster electronic settlement of trades: 

Transactions like selling and buying securities happen faster with a demat account as there is no paperwork or documentation involved in this process. The electronic settlement of trades is faster and requires T+2 days to complete. 

Easy transfer of holdings: 

You can transfer your holdings from one demat account to another seamlessly with a demat account. You only need a DIS (Delivery Instruction Slip) to carry out the transfer process smoothly. CDSL provides an online facility called Easiest to transfer the holdings online. NSDL offers a Speed-e facility to carry out the online transfers in a convenient manner. 

Dematerialisation of securities: 

Physical securities can be converted into electronic form through a process known as dematerialisation. Similarly, electronic securities can be converted into physical certificates whenever you require them. 

Option to freeze demat account: 

You can freeze your demat account if you are planning to take a break from trading. You can restrict unwanted debits by freezing your account. However, you can keep the credit option open to keep receiving corporate benefits as before. 

Access to corporate benefits: 

Corporate benefits like dividends, stock splits, and bonus shares are credited directly to your demat account. You also get updates on the upcoming benefits and IPOs through your demat account.

Access to research and advisory:

If you are a beginner in trading, you can subscribe to the research and advisory services offered by a stockbroker. These services will provide you with recommendations for the best stocks, research reports, and analytics. As a result, you will be able to invest in the best stocks without conducting research by yourself. 

Benefits of having a demat account:

These are some key benefits of opening a demat account:

Safe way to hold and monitor securities:

Demat accounts provide you with a secure way of holding and monitoring securities. Electronic securities are not prone to damages and theft. Moreover, the brokers integrate advanced security features like data encryption to ensure the safety of your account. 

Eliminates hassles of paperwork:

No paperwork is required to trade as everything is handled electronically when you trade through a demat account. 

No geographic limitations:

A demat account allows you to invest from any part of the world via a smartphone app and the internet. You can also monitor your holdings from anywhere at any time by logging in to your demat account. 

Invest in multiple asset classes:

Through a demat account, it is possible to invest in multiple asset classes like equities, debentures, currencies, commodities, and mutual funds. By investing in multiple financial instruments, you can diversify your investment portfolio and minimize market risks.

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