What is Demat account and how it works?

Why should there be a Demat account?

As per SEBI guidelines, shares cannot be sold or bought in any form except Demat. Therefore, if you want to buy or sell stocks from the stock market then you must have a Demat account. SEBI Notification with respect to this matter can be seen on the SEBI Website

How does it work?

There is a T+2 Concept of transferring the shares into the Demat account. When you buy a share, the broker credits the shares in the Demat account with it and it appears in the details of your holding. If you trade through an internet-based platform, you can view your holdings online. Specifically, the broker credits the shares at T + 2, which is after the trading day + 2 days. If you want to know more about T+2 Concept, go to the NSE website

When you sell shares, you have to give delivery instructions to your broker, in which you have to fill in the details of the stock sold. The stock gets debited in your account and you receive the money for the shares sold.

If you pay through the internet, debit of shares and credit of amount starts appearing automatically in your account. It is a very secure way of doing the transaction online. Many brokers are providing this service to their customers in this digital world.  

There are two depositories in India - National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), which hold shares in digital form through various depository participants. Depository Participants are treated as an agent of the depositories who collect shares from the investors and store them with depositories in digital form. Every Demat account has a 16 digit account number which is assigned by the Depository Participants.

Benefits of opening a Demat account 

There is no problem with holding shares in physical forms. There is no dilemma and in this, you can also buy and sell a share. There is no stamp duty on the transfer. No transfer deed is required.

You can also visit these sites of NSDL and CDSL https://nsdl.co.in/ and http://www.cdslindia.com/.

Please keep these things in mind before opening an account

An account where one can hold shares and is protected electronically is called a Demat account.

If you want to buy or sell shares from the stock market in India, a Demat account is mandatory.

Apart from this, if you want to apply your shares to the Initial Public Offering (IPO), then you must have a Demat account.

There are two depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), by which shares are held by various depository participants.

The depository has security like shares, debentures, bonds, government securities, mutual fund units, etc in digital form. Depository participants are intermediaries between investors and depositories. To avail of any service from the depository, the investor needs a depository participant.

Charges of physical security into Demat form vary from institution to institution and also depends on how the account is held and the amount to be transferred. Account opening fees, annual maintenance fees, transactions or brokerage charges are some of the charges which are included in the Demat account.

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DISCLAIMER The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however, it should not be perceived as professional or legal advice. The reader should consult a professional before making any decision based upon this document. Under no circumstance, the author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.