What Is The Demat Account And How To Use It?

A Demat account is a must to invest in multiple financial instruments online and to hold several securities at once place. Also, you will need a trading account to place orders i.e. for buying and selling stocks. The assistance of a broker who can help you while settling transactions and trades will also be required.

Procedure for opening Demat account:

Follow these steps to create a Demat account:

  • Step 1: At first, select a depository partner who is registered with either of the depository organizations i.e. CDSL or NSDL.
  • Step 2: This depository partner will provide an application form which you need to fill and submit along with documents like PAN Card, passport size photo, canceled cheque, account statement, AADHAR Card, etc.
  • Step 3: Now, the broker will conduct an in-person verification to confirm your eligibility and authenticity of the documents. After that, you will get an account number that is to be used while accessing your Demat account online.

Benefits of a Demat account

  • Tiresome procedures and additional costs like stamp duties are eliminated with the introduction of the Demat account.
  • Since a Demat account holds securities in electronic form, the risk of theft or misuse that prevails when the securities certificates are stored in the physical form gets nullified.
  • It is much easier to trade online with the help of a Demat account as the securities can be bought, sold, and transferred online in real-time.

How to use it?

Once a broker helps you open Demat account, you can access it from anywhere by using an internet connection and laptop. These days, broking firms also provide an app that can be utilized to check the prices of stocks for participating in trading on the go.

Let’s see how to use a Demat account for buying and selling shares now:

Demat account meaning is an account used to store securities in Dematerialized form. It is linked with your bank account. When you place the ‘Buy’ order from your trading account, the money is deducted from your bank account first and then the shares are credited or added in your Demat account.

For selling these shares, you will need a trading account to place the ‘Sell’ order and after that, the shares get deducted from your Demat account. On successful transactions, the money gets added back to your bank account.

The broker or depository partner (DP) who you select to open a Demat account can also help you manage your accounts, trade on your behalf, and assist you to settle trades, transactions, and buy/sell orders smoothly.

The one who offers advisory services along with a wide portfolio of market solutions, research reports, and support services is called a full-service broker and the one who only follows your instructions (buy/sell) without providing any additional services is known as a discount broker.

The former charges a percentage of every trade as a commission whereas the later offers a flat fee for every trade. This means that the services of a full-service broker will prove to be expensive when the trade volume is larger. The low-cost brokerage solutions offered by a discount broker can prove to be beneficial if you are a beginner in stock trading.

However, you don’t need to be confused while choosing a broker as many brokerage firms are providing the best features nowadays. Also, it is better to go with brokers or brokerage firms that offer a flat brokerage fee irrespective of the trade volume and provide subscription packages as per your trading requirements.

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