The stock market is one of the most popular investment avenues. The amount of returns that can be generated in the stock market makes it the most attractive mode of investment. The attractive returns compel many people to park their savings in the stock market for long term investment. However, you must know that investing in the shares and securities is possible only if you have a demat account. In this article, you will learn about the purpose of having a demat account.
But before we go ahead, let us understand the meaning of a demat account.
What is a Demat Account?
Demat account holds the shares and securities of an individual in the electronic form. It is just like a bank account. In the bank account, you hold your money while in the demat account, you hold your shares or securities. The demat account facilitates the user to trade in shares and securities through online mode.
Let us now learn the purpose of having a demat account.
Purpose of Demat Account
- Purchase of Shares and Securities
Demat account is the primary requirement for purchasing shares and securities. Without a demat account it is not possible for you to transact in shares. For any type of transaction in the Indian securities market, having a demat account is compulsory.
- Less Risky
The demat account holds your shares and securities in electronic form. This protects you from risks like loss of physical securities due to theft, damage, etc. In addition, there is no risk of bad deliveries. When shares are held in electronic form in the demat account these risks get completely eliminated.
- Tracking Portfolio Performance
Demat account can hold all your investments at a single place. This makes it easier for you to track the investment’s performance. The decision making becomes quick and easy as all your investments are visible to you at one place and the individual performance of shares or securities can be evaluated very easily.
- Saves Time
Demat account saves your time as there is no paperwork involved. The transactions can be quickly completed and the account holder can make more transactions in a shorter time. Thus, demat account proves to be efficient for traders and investors in the stock market.
- Transfer of Shares
You can easily transfer your share to the recipient through the demat account with the help of Delivery Instruction Slip (DIS) or Receipt Instruction Slip (RIS). These slips have all the details for executing the transaction efficiently and smoothly.
- Avail Loan Facility
Demat account helps the holder to avail loan facility against securities held in the account. The lenders provide loans to borrower by using the securities as collateral.
- Multiple Accessing Options
Demat account can be accessed through multiple modes. Since it is operated electronically, you can use the internet facility and log into your demat account on computer, laptop or even mobile phone. Thus, easy accessibility to the demat account makes trading or investing simpler and easier task.
- Faster Dematerialisation
Dematerialisation is the process of converting physical shares and securities into electronic form. With demat account, the holders can approach the depository participants or DP and avail this facility. Moreover, demat account also provides the facility of converting the electronic form of security into physical form.
- Corporate Advantages
When you apply for Initial Public Offer (IPO) or receive dividends or there is any other corporate benefit, all these are settled or added to your demat account automatically. You will get all your refunds in the demat account. Also, various benefits like a right issue, stock split, bonus issues, etc. by the company also get updated in the demat account automatically.
- Freezing Account
As a demat account holder, you can freeze your account to get rid of any unexpected transactions. This is beneficial for you as there cannot be any transaction in your account without your permission.
The above mentioned are few of the basic purposes of a demat account. As per recent data, it is observed that the majority of people who deal in the stock market use demat account to transact in shares and securities. If you are also looking to open a demat account, you can contact Kotak Securities and avail their premium hassle-free services at affordable rates.