First thing first, a demat account is a short form of Dematerialized account but is also known as DP account. The account is meant for holding the securities electronically instead of holding it physically. Functioning of a Demat account resembles that of a bank account. For instance, a savings bank account is meant for depositing and withdrawing money, and similarly, a demat account is used for withdrawing and depositing stocks, bonds, NSCs and debentures.
You don’t need to possess any physical certificates for your shares, as demat account holds all these electronically. All the buying and selling of shares are also adjusted in this account. Your DP will periodically provide you with statements of your holdings and transactions, which is similar to a bank passbook or statement.
Although Demat accounts is a relatively new concept in India, about 2% of the population are already operating their demat accounts. However, the rest of the population still prefers to hold physical evidence of their securities.
For trading in the Indian share market, all you need is a demat account and the money to trade. There are many benefits of holding a demat account. Some of the benefits include the buying and selling of shares and stocks of any company on BSE and NSE, online investing in mutual funds, investment in Gold via gold etfs, Apply for IPO’s (Initial Public Offer) online, online trading in Futures and Options, and investment in Liquid BeEs (Liquid ETF).
Other than that, demat account has to be linked with your bank account to carry out various monetary transactions successfully. Hence, all the redemption proceeds will automatically be credited to your account. Having a Demat account is also beneficial in other ways. For instance, in case of residence change, is you are a demat account holder, all you need to do is intimate your Depository Particiapnt (DP) in writing and your new address information would reach all the companies you have invested in.
In case you wish to redeem the debentures or sell the shares in your demat account, you can transfer it quickly and conveniently without requiring any to incur extra costs or paper work. This can be done by way of signing a Delivery Instruction Slip that works like a chequebook.
Furthermore, maintaining a demat account helps in preserving securities securely and safely. It is because when physical share and bond certificates are held by you, you stand a chance of losing its by way of theft, mutilation, etc. Thus, if you hold your securities in a demat account, you will do away with all the disadvantages of physical possession.
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