Features and Benefits of Opening a Demat Account

Last Updated on December 26, 2023 by BFSLTeam BFSLTeam

Opening a demat account is recommended to be able to invest in the Indian financial markets. The demat account plays such a crucial role that it is often considered the best discovery in the history of the Indian financial markets. The account has single-handedly been responsible for the proliferation and increase in popularity of online trading. Furthermore, it has made securities trading a lot faster, more efficient and more transparent. Wondering what the features and benefits of demat account are? Here’s a comprehensive overview of the various features and advantages of a demat account. 

What are the Features of a Demat Account?

A demat account comes with a host of different features. Here’s a quick overview of some of the key features. 

1. Instant Access to Investments 

The securities stored in a demat account can be accessed anytime instantly by simply logging into the dedicated portal of the depository. Both the depositories in India – the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL) – even have dedicated smartphone applications. By installing them onto your phone, you can access your investments even while you’re on the move. 

2. Faster Share Transfers 

Before the advent of demat accounts, shares were transferred physically from one investor to another. The process took anywhere from a few days to a few weeks to complete. However, with demat accounts, the time taken for shares to be transferred from one investor to another has come down significantly. Investors can now simply log into their demat accounts and initiate off-market share transfers online, which only takes a few hours to complete. 

Additional Read: AMC for Demat Account

3. Ability to Freeze the Account 

One of the more useful demat account features is the ability to temporarily freeze the account at will. Freezing an account will stop all credit and debit transactions until a request for unfreezing the account is placed. Long-term iInvestors who don’t use their accounts frequently often choose to voluntarily freeze their accounts to protect them from unauthorised access and transfers. 

4. Disbursal of Non-Cash Corporate Actions

Demat accounts have been designed with the idea of making the disbursal of non-cash corporate actions easier and seamless. Non-corporate actions include stock splits, reverse stock splits or stock consolidation and the issue of bonus shares. 

What are the Benefits of a Demat Account?

Now that you’ve seen the features of a demat account, let’s take a closer look at some of the benefits offered by it. 

1. Safety and Security 

The first and foremost benefit of opening a demat account is enhanced safety and security. Storing physical certificates of securities came with a plethora of different risks like theft, mutilation, damage and forgery, to name a few. 

Thankfully, with a demat account, there is absolutely zero risk whatsoever. As long as you maintain the confidentiality of the login credentials of your trading and demat account, the securities in your demat account will remain safe and secure from unauthorised access. 

2. Holds Multiple Kinds of Securities 

One of the major benefits of a demat account is its ability to electronically store not just equity shares but multiple kinds of securities. From government securities and corporate bonds to regular mutual fund units and Exchange Traded Funds, a demat account can hold all of them simultaneously. Furthermore, there’s no particular limit on the number of securities that a demat account can hold too. 

3. Reduced Costs 

There were a lot of costs involved with physical securities. Investors had to pay handling charges, stamp duties and courier charges, among others. With demat accounts, handling charges and courier charges have been eliminated completely. Meanwhile, the rate of stamp duty on the transfer of dematerialised securities on delivery basis is just 0.015% of the total transaction value. 

4. Odd Lots 

Another one of the most important benefits of demat accounts is that you can purchase and hold securities in odd lots. For instance, you can choose to purchase just 1 share of a company. This was previously not possible when securities were held physically since they had to be purchased and sold in certain specific quantities and lot sizes. 

5. Ability to Avail Loans Against Securities 

If you’re in urgent need of funds, you can avail a loan by pledging the securities in your demat account. While stockbrokers themselves do not provide Loan Against Securities. Stockbrokers partner with NBFC/Banks to offer loans against securities with minimal documentation and quick approvals. Although getting a loan against physical securities was possible, the process was often long-drawn and took many days. Thankfully, that’s not the case with demat accounts. You also get to enjoy flexible terms and attractive interest rates on such loans. 

6. Dematerialisation and Rematerialisation of Securities 

Dematerialisation is the process of converting physical securities into electronic form, whereas rematerialisation is the process of converting electronic securities back into their physical form. These processes have been made possible only due to the advent of demat accounts. 

Additional Read: How Long Does it Take to Open a Demat Account?

Conclusion

As you can see, opening a demat account has its fair share of advantages. According to the rules and regulations enacted by the Securities and Exchange Board of India (SEBI), a demat account is a mandatory requirement for participating in the Indian financial markets. Furthermore, you also get to enjoy a fast and seamless trading experience with demat accounts.  

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only.