A demat account is where you can hold all your financial investments digitally. As securities are held in electronic form, the entire trading process gets faster. Here are some key benefits of having a demat account:
- Beginners can understand the basics of trading by using the minimalist and user-friendly interface offered by stockbrokers.
- Before a company gets listed on the stock exchanges, it introduces its IPO. Traders usually subscribe to an IPO to get the benefit of the initial movement of the listed stocks. However, investors look at them from a long-term growth perspective. It is not possible to subscribe to an IPO without a demat account.
- The investors can bid for the IPO slots as per their requirements. If the IPO is oversubscribed, the bids are selected based on a lucky draw conducted through a computerized process.
- A demat account facilitates an easy platform to buy and sell securities. At the same time, it is also possible to monitor holdings and positions online through a demat account.
- As the transfer of funds and shares happens electronically, the trades get settled quickly. This saves both time and effort for the investors. You don’t have to go through tedious paperwork when trades are settled electronically. It also eliminates the need to pay stamp duty charges as no manual documentation is involved in the process.
- Digital securities cannot be damaged or stolen. Moreover, the latest security features and technologies can be employed to protect them from fraudsters.
- Companies pay a dividend or issue bonus shares to their shareholders as and when required. These corporate benefits are directly in your demat account.
- Initially, investors had to contact a stockbroker to place even a single trade. However, the introduction of demat accounts has negated this requirement as you can trade online with a basic knowledge of computer applications. Also, as the details regarding a transaction are sent through notification alerts, you don’t have to contact the broker to track every transaction.
- Through a demat account, it is possible to buy even a single share which was not possible when trading happened in the physical market.
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How to open a demat account?
To open a demat account, you can follow these steps:
Step 1: Visit the DP website
Choose a DP who offers demat services at reasonable demat account charges. Visit their website and fill out an online account opening form.
Step 2: Submit the form and documents
Submit the application form online along with the documents that validate your identity, address, and income.
Step 3: Complete document verification online
After submitting the documents, a DP generally calls you for an in-person verification round. However, due to the availability of video conferences, it is possible to complete the document verification online.
Step 4: Sign the contract
Once the documents are verified, the DP will ask you to sign a contract. It contains all the details regarding the rights and duties of investors and DP. Sign the contract only after reading it carefully.
Step 5: Get a BO ID
After completion of the account creation process, you will receive a 16-digit unique ID on your registered email address and phone number. It is known as BO ID (Beneficiary Owner Identity Number), which is unique for every investor. You will also need this number to access your demat account.
Here are some points on which you can focus while opening a demat account:
- Ensure that the demat account is linked with your trading account and bank account. This interlinking of accounts facilitates faster execution of trades.
- Fill out the account opening form with the correct details. If you want to choose a nominee for your demat account, ensure that you mention their name correctly.
- Proceed with the application process only if the broker communicates the brokerage rates and other demat account charges clearly.
- Once you open a demat account, all the updates regarding your investments will be shared via your registered email address and mobile number. Therefore, you must specify them correctly while filling out the online application.