The term Demat means dematerialization. A Demat account is an account that enables a user to hold their shares in an electronic form. A Demat account transforms the material shares into an electronic form, thus dematerializing them. When you create a Demat account, you will be provided an account number to be able to negotiate your trades electronically.
The functioning of a Demat account is identical to that of a normal bank account in which you can keep your fortune and have the option to deposit or withdraw it voluntarily. Similarly, your deposits are secured and credited and debited if you have a Demat account. Surprisingly, you do not even need to own any shares before opening a Demat account. In fact, your account can be opened with zero balance.
The Demat account thus enables an investor to buy and sell online. Buying and selling online takes place through shares trading platforms. DP procures platforms like these for investors. Using these trading arenas, an investor can purchase or sell in the stock or share market by placing an order.
Precautions to take care of while trading through a Demat account:
If you’re new to the world of trading and thinking of creating a Demat account to make your way into the monetary markets, there are certain precautions necessary to keep in mind that you might not be aware of. So to make things easy for you, we’re listing them down here.
- Strong Investor footing
You must look for an online platform with solid investor footing and a decent nationwide presence. This step will clear out the factor of false operators making commitments of good returns but barely ever succeeding in being able to deliver the promised results. Make sure to take the time to do some proper diligence or research on the depository party’s estate, including criteria such as years of operation, client base, and geographical imprint in regard to the number of divisions or branches.
- Choice of Broker
According to government policies, you can open a Demat account and trading account with various brokers. But it is crucial to look for a financial supporter who can provide both services for easy and efficient operations. This makes transacting even more profitable as procedures like allocating Debit Instruction Slips and conveniently resolving problems around trading become possible and can be performed by a sole being.
- Range of Product
A financial counterpart that offers strong trading platforms and enables you to invest your money in a diversified range of monetary products from Derivatives, Shares, Fixed Income (FI) products, Government of India (GOI) bonds, National Pension Scheme, Mutual Funds, Insurance solutions, investment in Gold, from a single unified account is important. This allows you to perceive and pursue all your investments from a single platform, making it simple to substantiate and manage them efficiently.
- Security of your account
The online world has its comfort but also comes with a safety risk which is vital to be contemplated, particularly when one is trading their hard-earned money or resources. Your Demat account should be maintained with the greatest level of security when it comes to data encryption being transferred between servers and computers. This is especially critical, seeing the current surge in cyber-attack episodes. To guarantee the highest levels of security for your valuable data and assure that customer data is completely encrypted and protected while transmission making it safe from cyber-attacks by unauthorized users as it communicates between various servers and computers.
- Online Access
In today’s modern world, using technology as a trader, a proprietor of depository parties offers the option of online access to your Demat account, providing hassle-free procedures and trading. This implies that your online platform can easily offer details about your valuations, portfolio, holdings, transaction statements, etc. Some of these platforms even provide immediate notifications on your investments, so choosing an online access option is vital and beneficial while trading.
- Minimum documentation
Creating or opening a Demat account must be as contactless and hassle-free as feasible, especially in the changing times in today’s world. Most depository parties today have completed the procedure online with the easy submission of application forms and documents. So it is beneficial to select a service provider offering the opening of your account with paperless and minimum documents.
- Nature of Accounts
Lawfully, one user can create and operate more than one Demat account for trading purposes, but there must be a reason for creating multiple accounts. For example, if you operate multiple accounts, it is vital to take care of keeping track of your marketing or transactions. Similarly, you also need to evaluate whether you need a joint account or a single account and prepare the documents accordingly.
- Account operating Charges
It is essential to evaluate the charges that will be charged for opening and operating your Demat account, which can differ from one depository party to another. These charges include account-creating fees, which can even be free for some service providers. Additionally, annual maintenance fees are imposed for online and supplementary services offered on your account for the entire year. Finally, some providers even charge a transaction fee for certain trades, with the alternative of discounted brokerage.
Why open a Demat account?
You can hold all your securities in your dematerialized or Demat accounts, such as bonds, shares, mutual funds, exchange-traded funds (ETFs), and FDs in a dematerialized setup or form. With the retrievals from some investment derivatives dwindling and the inception of technology-based platforms to facilitate profitable trading, also modifying your investments to encompass financial markets, opening a Demat account has become an advantageous resort that must not be skipped.