What is a Demat Account and why is it important?

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Maintaining a physical record of every important piece of paper is exhausting. You have to store them for an infinite period of time, not knowing when you might need to use or refer to them. There is also the constant fear of files getting lost, misplaced, destroyed, or stolen. What’s more, keeping paper records is more time-consuming than simply using a computer. All these cons are amplified even further when the documents in question are as valuable and irreplaceable as shares and securities.

Image Source – Demat Account

In order to sidestep the complication that arises from taking physical possession of certificates, shareholders in India use demat accounts. A demat account allows investors to hold their shares in an electronic format that is achieved through the process of de-materialization. Its functions are similar to those of a savings account – securities are debited or credited as per transactions made and you can check the value of your holdings. An individual can deposit different kinds of investments, including government securities, bonds, mutual funds, and exchange traded funds.

Importance of Demat Account

For investors, this form of paperless trading has become a necessity. This is because a Demat account provides the opportunity to invest in a variety of assets ranging from gold ETFs to commodity futures. And that’s not all. Having a demat account is also important for the following reasons:

1. Safe Repository of Shares

As mentioned earlier, the storage of stocks in their physical form is often difficult. Demat accounts help you maintain a safe and systematic record of all your transactions while eliminating the risk of loss or misplacement. Additionally, they keep you protected from threats like incomplete paperwork, bad deliveries, and fake securities. The numerous layers of protection and regulations attached to a Demat account unquestionably beat paper records.

2. Indispensable for Trading

The biggest disadvantage of not having a demat account is that you can’t trade in the stock market without it. Since stock trading is undertaken electronically, a demat account is indispensable for the purpose of buying and selling shares of companies that are publicly listed. At present, it is mandatory to settle trades made on any stock exchange in demat form.

3. Holds Multiple Securities at Once

It can get confusing for traders to properly organise different kinds of financial products like bonds and mutual funds. A Demat account solves this problem by preserving multiple securities in one place, which makes it easier for you to keep track of everything important. It’s one of the few instances when keeping all your eggs in one basket is actually a good idea.

4. Quick and Convenient

Dealing with physical securities can be a long and tedious process. It would entail you visiting your broker every time you have to make a trade. The delivery time of trading electronically is a fraction of what it would be otherwise, and you also receive your credit much faster after each transaction. Furthermore, you don’t have to be confined to your home or office while trading. You can trade on-the-go on your phone anytime. A demat account makes all of this possible.

When it comes to share market trading, the importance of a demat account cannot be emphasised enough. If you want to experience trading at its simplest and most seamless, then having a demat account should be on your list of priorities. The best part is that the procedure of opening the account is quite fast and straightforward!