Demat Account :First step to trade in share market
If you have ever been interested in learning about the stock market, this is your chance.
With growing share market awareness, more and more people now want to participate in the share market. To do this, we should understand the basic requirements to trade in shares.Let me take you along to the fantastic world of trading in shares.
So we will start with Demat Account.
A company listed on a stock exchange; have to offer the securities (e.g. shares) in both physical and dematerialized mode.
-Physical mode means actual certificates giving information about the shares of a company owned by a person.
-Dematerialization is the process of converting physical shares i.e. shares certificates into an electronic form.
Dematerialization of shares is optional and an investor can still hold shares in physical form.
But we have to demat the shares if we want to sell the shares through the Stock exchanges, because now a day’s almost all of the shares trading happens using the Demat mode of shares.
For trading through the Demat mode of shares, DEMAT account is required.
You need to maintain an account with a depository (for more info see note@ the end of this blog) if you intend to hold securities in demat form.
What is a DEMAT account?
DEMAT Account refers to a dematerialised account.
A DEMAT account is an account which we need for buying/selling the shares/stocks of a company and other equities like mutual funds, exchange traded funds - Gold ETFs etc.
Demat account hold equities, we cannot put money in demat account.
Let's say: If I buy shares like this: 50 of Infosys, 25 of Reliance, 15 of TCS. All these shares will be shown in my demat account.
So we don't have to possess any physical certificates showing that we own these shares. They are all held electronically in our account.
As we buy and sell the shares, they are adjusted in our account.
We have to contact the DPs (For information on DPs See note @the end of this blog), to open the demat account. He will give you all the required details for opening DEMAT.
After opening the demat account, the DP will provide you with periodic statements of holdings and transactions, just like a bank statement. However for sake of your own information,it is better to keep a record of the shares purchase pricesof on your own as this information is not included in the statement.
There are several DPs in India for e.g. ICICIDirect,Kotak,SBI,Sharekhan,Reliance Money,Motilal Oswal etc.
There are many Benefits of holding shares in DEMAT form:
Benefits:
-Immediate transfer of shares. Demat avoids the time consuming and complex process of getting shares transferred in the name of buyers.
-Elimination of risks associated with physical certificates such as bad delivery, fake securities (in postal delivery), etc.
- Reduction in paperwork involved in transfer of shares.
- Holding investments in shares, debts and mutual fund units in a single account.
-Also automatic credits of shares into demat account, in case if a company declares bonus shares or split of shares.
-It is also safe, secure and convenient.
-No stamp duty for transfer of shares
-Transmission of securities is done by DPs.We don’t have to interact with companies.
The next blog will be on other DEMAT details like How to open DEMAT Account.
Note: Like bank holds money in a Bank account, Depository holds securities (i.e. Shares, Bonds, Mutual fund units etc.) in an account.
The Depository provides its services to investors through its agents called depository participants (DPs).Banks, Financial Institutions, and SEBI registered members can become DPs.
With growing share market awareness, more and more people now want to participate in the share market. To do this, we should understand the basic requirements to trade in shares.Let me take you along to the fantastic world of trading in shares.
So we will start with Demat Account.
A company listed on a stock exchange; have to offer the securities (e.g. shares) in both physical and dematerialized mode.
-Physical mode means actual certificates giving information about the shares of a company owned by a person.
-Dematerialization is the process of converting physical shares i.e. shares certificates into an electronic form.
Dematerialization of shares is optional and an investor can still hold shares in physical form.
But we have to demat the shares if we want to sell the shares through the Stock exchanges, because now a day’s almost all of the shares trading happens using the Demat mode of shares.
For trading through the Demat mode of shares, DEMAT account is required.
You need to maintain an account with a depository (for more info see note@ the end of this blog) if you intend to hold securities in demat form.
What is a DEMAT account?
DEMAT Account refers to a dematerialised account.
A DEMAT account is an account which we need for buying/selling the shares/stocks of a company and other equities like mutual funds, exchange traded funds - Gold ETFs etc.
Demat account hold equities, we cannot put money in demat account.
Let's say: If I buy shares like this: 50 of Infosys, 25 of Reliance, 15 of TCS. All these shares will be shown in my demat account.
So we don't have to possess any physical certificates showing that we own these shares. They are all held electronically in our account.
As we buy and sell the shares, they are adjusted in our account.
We have to contact the DPs (For information on DPs See note @the end of this blog), to open the demat account. He will give you all the required details for opening DEMAT.
After opening the demat account, the DP will provide you with periodic statements of holdings and transactions, just like a bank statement. However for sake of your own information,it is better to keep a record of the shares purchase pricesof on your own as this information is not included in the statement.
There are several DPs in India for e.g. ICICIDirect,Kotak,SBI,Sharekhan,Reliance Money,Motilal Oswal etc.
There are many Benefits of holding shares in DEMAT form:
Benefits:
-Immediate transfer of shares. Demat avoids the time consuming and complex process of getting shares transferred in the name of buyers.
-Elimination of risks associated with physical certificates such as bad delivery, fake securities (in postal delivery), etc.
- Reduction in paperwork involved in transfer of shares.
- Holding investments in shares, debts and mutual fund units in a single account.
-Also automatic credits of shares into demat account, in case if a company declares bonus shares or split of shares.
-It is also safe, secure and convenient.
-No stamp duty for transfer of shares
-Transmission of securities is done by DPs.We don’t have to interact with companies.
The next blog will be on other DEMAT details like How to open DEMAT Account.
Note: Like bank holds money in a Bank account, Depository holds securities (i.e. Shares, Bonds, Mutual fund units etc.) in an account.
The Depository provides its services to investors through its agents called depository participants (DPs).Banks, Financial Institutions, and SEBI registered members can become DPs.
Thanks Sadhu very useful info Can you also tell which is better brokerage firm among the list you mentioned
Sure Appi.I will post new blog about it soon.