Where do you hold your money? In a bank account, correct? Similarly, if you want to own shares, bonds or debentures, you need a dematerialized or a Demat account. A Demat account is a must for any transactions you need to make in the share or bond market.
Gone are the days when people hold physical shares or bond certificates. You have to move with the times and now keep them online. Just like you need a cupboard to store your clothes, you need a Demat account to store any securities you purchase electronically. You can also store other investments like exchange-traded funds, mutual funds, and government securities in this account.
However, just because you own a Demat account doesn’t mean you have to possess these securities. You can also open a zero balance Demat account and hold it in case you want to invest in electronic securities in the future.
A Demat account doesn’t just help you store your securities electronically. There’s so much more that you can do with a Demat account. Let’s take a look at the advantages that it will have for you:
Using a Demat account, you can transfer securities to others. All you need is a Delivery Instruction Slip to enable trading. Provide the relevant details in the slip, and your transaction will be complete. It’s an easy and hassle-free way to transfer ownership of securities to someone else.
Banks provide individuals with loans against the value of their securities in a Demat account. It acts as collateral for borrowing. Not only do your securities continue to appreciate, and you can enjoy benefits such as dividends, bonuses, and rights on them, you can also use them to get additional money. Win-win!
If you want a particular security’s physical format for some reason, then it’s easy to do that with a Demat account. Just give instructions to your depository participant to dematerialize your securities certificate, and you will receive a physical copy. In the same way, as mentioned earlier, you can also convert physical copies of securities into electronic copies to store in your account.
You can use the shares or securities in your Demat account as margin funding to trade in the stock market. Some brokers allow this facility, which is called collateral margin. They may charge a little interest since this is a loan facility, but think of the profit you can make by using the securities lying in your account!
With a Demat account, you don’t have to worry about keeping track of different corporate actions on your securities. If a company in which you own shares declares dividends, a bonus issue, a stock split, or rights shares, then these will automatically be reflected in your account. You can save yourself the hassle of following up on these.
As you can see, there are numerous benefits of owning a Demat account. It gives you easy liquidity to buy and sell securities in electronic form, and it is also safer to store your investments.
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Disclaimer: The information provided on the website is only for informational purposes and is not intended to, constitute legal advice, instead of all information, content, and other available materials.