Concept of Demat account:
Trading in the stock market needs a platform or a path through which you can trade. As a result of the dematerialization act, 1996, securities in the stock market are required to be kept in a digital safe house. A demat account gives an opportunity to electronically hold and carry several securities for the purpose of trading. Prior to 1996, investors were needed to visit the brokers to place an order. Moreover, all securities in circulation were in a physical mode that took many days for settlement. With the introduction of trading and demat accounts, now every security is required to be kept in automated form.
Following are some features that would give a broad understanding regarding this account:
- With the use of computerized technology, it allows you to explore the world of the financial market for holding traded securities in your account.
- It seems to be a digital locker or safehouse like a bank locker, that removes a chance of theft, physical damage, and wear-tear.
- It facilitates a path to trade in the market along with a trading account.
- An amazing feature of advanced demat account service is that you can buy and sell any type of security weather stock, bond, short-term instrument, mutual funds, ETFs, and even derivatives.
Before taking a decision to open a demat account, you would be curious to know some facilities that would encourage you to trade with a digital trading system.
Demat Account Facilities in the Stock Market Trading
Following are some fruitful facilities that you can avail of through an online demat account.:
- Fastest exchange of securities:
With an automation effect, you can settle your trade transaction 2 days after placing an order. It allows you to transfer ownership of the security to another party rapidly. In the case of stocks, a delivery instruction slip provides details about the transfer. Now a rule has allowed settlement to be completed within one day.
- Borrowing facility:
If you want some funds, then the securities held in the account would give you a chance to borrow a loan with these collateral securities. It facilitates you to explore an investment with a borrowed amount, which can be an option to earn some returns.
- Easy conversion from physical to digital security:
As per the guideline of the Securities and Exchange Board of India, every stock market transaction would take place in electronic form. To comply with these instructions, a demat account allows you to convert your physical and paper-based security into electronic form. For it, you need to give some important details to your depository participants/ brokers to convert the securities virtually.
- Multiple tasks with a single account:
Some years ago, a demat account used to provide some limited facilities in which a holding feature is primary, but with a changing scenario, a demat is offering multiple tasks with a single account in your pocket. You can explore, hold, trade nemours securities at a time. Apart from trading in stocks and bonds, now it allows you to trade with future and options that required a margin trading and trading account earlier.
After getting an understanding of the aforementioned facilities, let us understand the process:
Procedure to open a demat account:
A dream to trade in the stock market can become a reality if you start your account by opening a demat account. The following steps will guide you regarding this:
- Before making any decision, visit various stock brokerage firms’ websites that will assist you regarding their initial expenses, annual maintenance fees, per-transaction fees, account activation requirements, time and efforts required to open an account, additional services like analysis of the traded stock, etc.
- Select the best brokerage firms that provide you the best and least-cost services among all service providers.
- After selecting a perfect match, fill an application form for personal as well as some other important details. To verify your validity, the broker will ask you to upload a few important credentials. These are:
- Personal ID proofs: PAN card, Aadhaar card, Voter ID card, etc.
- Bank details: Account number and other detailed, 6-months bank statement.
- Income proof: ITR receipt, Annual income receipt (If any).
- Other relevant documents.
- With uploading these documents, a KYC team of a brokerage firm verifies your documents. The validity of these documents provides you a unique client number to trade in the market.
This simple process authorizes you to start your trading journey by placing your first order.
