Demat account is also known as the dematerialized account. It is an account that is used for the purpose of holding shares and securities in the form of an electronic format. This is usually preferred in the field of online trading. Here whenever the shares are bought these are held safely in these demat account in an electronic format. This is done to ensure that the trade is facilitated in an easy way. A demat account is generally known to hold an individual’s all of those investments that make in shares, exchange traded funds, government securities , mutual funds, bonds etc. The data that is stored in these accounts are initially in the physical forms but are converted into electronic form and then are stored safely.
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How are the demat accounts services provided?
In countries like India, these demat account services are mainly provides by bodies like NSDL AND CDSL which are some well known important depositories. It is done through either intermediaries or depository participant. Some stock brokers like angel broking are also involved in such activities. Now the chargers of these dematerialized accounts vary depending upon the volume which is present in those accounts or the type subscribed. They also depend on the terms and conditions which are provided by the stock brokers or even the various depositories.
What is dematerialization?
It is process in which the physical data which includes the share certificates are converted into the electronic forms so that they can be stored in the demat accounts. This is quite easy to maintain that too from any corner of the world.
How does the demat account work?
Now to begin with the online trading, the investor has to first open up his own demat account with DP also known as the depository participants. The demat accounts help in tracking and monitoring the holding online itself. Also there is a specific dematerialized account which is quoted for all the transactions that helps in enabling trades that will require electronic settlements. So for the purpose for transactions every share holders need to have their own demat accounts. Also if one has to access their demat accounts they will be requiring two passwords one for the internet and the other for the transaction password. After this initiation of transfer or purchase takes place. And once the transaction is confirmed, the purchase as well as the sales of the securities is automatically made. Thus the transaction get completed and hence confirmed.
The importance of demat accounts
The demat accounts hold quite importance when it comes to online trading. The benefits of demat accounts are as follows-
- It has lower risks.
- There is reduced cost.
- It save a lot of time.
- It provides the facility of easy holdings
Conclusion
Thus the demat accounts allow any investors to be able to hold their securities in a digital format. Thus the entire procedure of making investments, holding shares, monitoring and trading become quite convenient, cost effective and fast.