A Demat account, short for a Dematerialization account, is an electronic account that holds an individual’s shares and securities in a dematerialized form. In simpler terms, it is a way to hold stocks, bonds, and other securities in an electronic format instead of traditional physical certificates. The Securities and Exchange Board of India (SEBI) made it mandatory to hold a Demat account for certain transactions in 1996, and since then, it has become an essential tool for trading in the Indian stock market with the help of stock trading.
There are several situations where it is compulsory to have a Demat account, and they are as follows:
- Trading in shares: If you wish to trade in shares listed on the Indian stock exchanges like the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), it is mandatory to have a Demat account. This is because physical shares are no longer traded on the stock exchanges. All share trading is done in electronic form, and a Demat account is required to hold the shares when you know how to open demat account.
- Investing in mutual funds: Mutual funds are a popular investment option for many individuals. If you wish to invest in mutual funds, you will need to have a Demat account. This is because mutual fund units are held in electronic form, and a Demat account is required to hold them.
- Initial Public Offerings (IPOs): An IPO is the first sale of shares by a company to the public. If you wish to apply for an IPO, you will need to have a Demat account. This is because the shares allotted to you will be credited to your Demat account.
- Securities issued by the government: The government issues securities like bonds and treasury bills. If you wish to invest in these securities, you will need to have a Demat account. This is because the securities are held in electronic form, and a Demat account is required to hold them by understanding stock trading.
- Securities issued by private companies: Private companies also issue securities like debentures and bonds. If you wish to invest in these securities, you will need to have a Demat account. This is because the securities are held in electronic form, and a Demat account is required to hold them.
Apart from the above-mentioned situations, there are other reasons why it is advisable to have a Demat account. One of the primary benefits of having a Demat account is that it eliminates the risk of loss or damage to physical share certificates. With a Demat account, all your securities are held in electronic form, and there is no risk of loss or damage using investing indices.
Another benefit of having a Demat account is that it makes the process of trading and investing in securities much more convenient. With a Demat account, you can buy and sell securities from the comfort of your home or office. You do not need to visit a broker or a registrar to buy or sell securities only when you understand what is demat account.
