Such accounts are of crucial importance today because, the entire financial platform
of investing, trading and maintaining have become digitised. Hence, to enable the
user with a seamless and straightforward experience, demat accounts are the necessity
of the day. These accounts are essential to trade in India’s stock exchanges. Although
SEBI – Securities and Exchange Board of India, has permitted traded up to 500 shares
to be settled in the physical form, it is not a preferable option these days since
it causes excessive inconvenience of maintenance and tracking.
This account retains certificates of financial instruments such as shares, bonds,
government securities, etc. Thus, the dematerialisation account aids the investor
to maintain their investments systematically as well as concedes an easy movement
to buy and sell any products they desire. A Demat account is more than just an account
to hold securities. Through digitisation, it adds to market transparency and better
regulation.
Investing in physical shares is a lot of paperwork together with a lengthy procedure
and a high risk of receiving fake shares. To keep this entire process simple and
streamlined, an investor should choose to open a demat account. Online trading,
enables the shares and securities to be held in such an account in dematerialised
or electronic format. Dematerialisation is the process of converting the physical
share certificates to an electronic form to increase its accessibility. As per SEBI
guidelines, such accounts is mandatory for every shareholder who intends to trade
in stocks and shares and other products.
Hence, to settle trades electronically, an investor requires a specific demat account
number. It is a similar concept to that of a bank account; wherein there is a record
of the debt and credit of the balances maintained in a bank passbook. Likewise,
when a purchase or sale of a share is undertaken, it will be either credited or
debited to or from the account respectively. Thus, holding a such an account allows
the investor to buy and sell shares or any other product and hold them safe and
sound.
A demat account can be used to retain several investments like shares, stocks, index
and gold, bonds, Government securities, initial public offerings(IPOs), Exchange
traded funds (ETFs), non-convertible debentures(NCDs), mutual funds, etc. which
are traded on the exchanges. You can open a demat account without owning any shares
or products together with maintaining a zero balance account.