A Demat account stands for Dematerialisation Account and is a digital account wherein financial investments like Equity Shares, ETF’s, Bonds, Debt Securities, Bonds etc can be held in Digital Format. If a person purchases any of these financial investments – such investment would be transferred from the demat account of the seller to the demat account of the buyer.
The facility of opening a Demat Account is offered by various financial institutions and a person can opt for opening a demat account with any of these demat account providers.
Benefits of a Demat Account
Demat Accounts were introduced in India in 1996 and have various benefits over physical certificates and some of these benefits are listed below:-
- Quick and Convenient: Demat accounts facility quick and easy trading of financial investments. As these are in digital form, these can’t be faked or forged as proper controls are undertaken by regulators and there are proper audit trails.
- Reduces Paperwork: Demat accounts reduce the paper work to a huge extent as everything is carried out in digital format.
- Increases Share Trading and Liquidity: As trading through Demat accounts is quick and convenient, more people trade in these investments as these can be traded at the click of a button which in-turn increases the liquidity in the market.
Types of Demat Accounts
In India, there are 3 types of Demat Accounts and depending on the residential status of the individual, they can decide which type of Demat Account to opt for:-
- Regular Demat Accounts: These are regular Demat Accounts and can be opened by persons who are residents in India
- Repatriable Demat Accounts: This is one of the 2 types of demat accounts options available for NRI’s. As the name signifies, this type of Demat Account allows a person to transfer funds abroad if the person is an NRI. The NRI needs to link this account with his NRE Bank Account in order to enjoy the facility of repatriation of funds.
- Non-Repatriable Demat Accounts: This is the 2nd type of demat account option available for an NRI and an NRI can opt for this type of account if he does not wish to repatriate the money abroad. The NRI should link this account with his NRO Bank Account.
Things to check before opening a Demat Account
Demat Accounts are nowadays offered by various financial institutions. However, not all demat accounts offer the same services. Therefore, before opening a demat account with any of these financial institutions, the following things should be checked: –
- Trading Account Facility
It is important to note that a Demat Account is an account where all the financial investments are kept in a digital format. However, to trade these investments – you also need a trading account. Demat and Trading accounts may either be with the same financial institution or with different financial institutions. Therefore, before opening a demat account – you should check whether the same organisation provides you with a facility for trading account as well or you would be required to opt for a trading account separately with some other financial institution.
A Demat Account charges its customers the following type of fees:-
- Account Opening Charges
- Annual Maintenance Charges
- Brokerage Charges
- DP Charges
While deciding where to open a demat account, a person should keep all these charges in mind and decide accordingly.
- Discount Brokerage or Full Service Brokerage
A Discount brokerage account is an account which offers only limited essential services and offers these services at a very low cost. On the other hand, a full service brokerage is a brokerage account which offers many ancillary services but charges higher fees for these services.The full-service brokerage does not charge separately for these ancillary services but increases the annual maintenance and brokerage charges.