Have you seen a stock certificate? Options are that you have not. Why? Because today, most investors/traders have their holdings in ‘demat’ or electronic form.
What is Dematerialization of stocks?
Demat means for dematerialization. Dematerialization is the method of transferring physical monetary gadgets such as stock certificates, mutual fund investments, and bonds into electronic form. An shareholder who wants to dematerialize his stocks wants to open a demat account with Depository Participant. These physical shares are then submitted by the shareholder and in revisit he obtains electronic stocks in his demat account.
A demat account is like to a bank account. When you get own bank declaration, you would notice two columns – deposits and withdrawals of money and balance money in the account on the previous day of the declaration. Likewise, a demat declaration would demonstrate the assets you have bought, sold and the balance assets held on the previous day of the declaration.
Now you may speculate – where do I open a demat account? That is simple. When you desire to purchase equity stocks, you approach your bank or an equity stock broker. The broker/dealer would open the demat account for you along with the brokerage account. When you purchase and sell securities, the broker/dealer would have the securities deposited into or stirred out of the connected demat account. You would also want to link own bank account to the brokerage account for transfer of funds when you purchase and sell stocks, and for payment of connected costs.
If the Share broker is a depository participant (who is certified to open and continue demat accounts), the broker/dealer would open own demat account and continue it in-house. However, if the dealer isn’t a DP, your demat account would be opened with a DP the broking firm is linked with.
ADVANTAGES OF DEMATERIALISATION
You may ask – but why has demat been introduce? To answer own question, take a appear at the benefits arising from demat:
Holding own investments in demat is simple and suitable.
You do not have to face the trouble of losing asset certificates or getting forged certificates.
Transferring securities becomes simple.
You invite poorer expenses connected with transactions when contrasted to physical purchasing and selling of securities.
You get bonus stocks and stock tears repeatedly.
Influenced about the advantages of demat? Now let’s observe how to open a demat account
Fill Form: Fill in an account opening form for brokerage firm service and for opening demat account.
Sign DP contract: Sign a DP contract and Power of Attorney allowing the DP to transfer stocks in and out of own account when you purchase and sell.
KYC obligations: whole the KYC obligations for which you want to offer own identity and address proof and cancelled cheque of own bank account which you desire to link to own brokerage and demat account.
Once the account is opened, the DP would provide you a customer id (very alike to a bank account number).
Demat account fees
You may ask – is it costly to have a demat account? The answer is a clear – no. To explain, take a seem at the expenses connected with a demat account:
Costs towards dematerialization and rematerialisation (transferring electronic form back to physical form) of securities range amid Rs 10 to Rs 40/ appeal form.
Yearly maintenance charge: This is charged by the DP to sustain own demat account and could level amid Rs 300 to Rs 500 yearly.
Transactions charge on each buy and sale is 0.04 Per cent of the worth of the transaction or lowest levels amid Rs. 10 to Rs 20/ instruction, whichever is upper for securities.
As an investor/trader, there are only causes to joyfulness. Demat accounts are a annoy free, simple and safe way to transact and hold securities.