What Is a Demat Account? Meaning, Benefits, and How It Works

Investing in shares is one of the finest ways if you wish to have a diversified portfolio. This allows you to invest in a range of companies that help you earn and even learn new things. Starting from trading and investing to building wealth, you learn a lot.

But do you know what you need to start all this? Well, this is a demat account. This is nothing but a digital locket where you hold all your assets and instruments. However, understanding how a demat account works is the first real step into the stock market.

So, let us explore what is demat account is and how it works in the guide over here. Get all the answers you to to start trading with confidence.

What Is a Demat Account?

A demat account is short for a dematerialized account. It is used to hold your financial securities in electronic form. You do not need to keep the physical share certificates. Instead, all your investments are stored digitally and linked to your PAN and bank account.

In other words, when you buy and sell shares in the market, they are held in the demat account until the process is completed. When you buy, you get the credit in the form of securities. And when you sell, the same is debited. This system makes investing safer, quicker, and more convenient.

A demat account can hold shares, mutual funds, ETFs, bonds, government securities, and IPO allotments. It works along with a trading account, which is used to place buy and sell orders in the market.

How Does a Demat Account Work?

A demat account works in a simple and structured way. Once the account is active, every investment you make moves through a fixed process. This is valid for all the types of demat accounts under consideration. So, here is how it works in reality:

1. Opening the Demat Account

You open a demat account. This should be with a SEBI-registered Depository Participant. After verification, a BO ID (Beneficial Owner Identification Number) is issued. This is your unique demat account number.

2. Placing a Buy Order

You place a buy order through your trading account. Once the trade is completed, the securities are credited to your demat account against your BO ID.

3. Placing a Sell Order

The securities are debited from your demat account when you sell them. The amount for which you sold your securities will now be credited to your bank account. 

4. Settlement Process

All trades follow the market settlement cycle. After settlement, shares move in or out of your demat account automatically.

5. Holding and Tracking Investments

In the demat account, you can track all your securities. This allows you to have one quick glance at what you hold and ensure that you are in a better position to analyse your investments.

Benefits of a Demat Account

For most investors, a demat account is not just a requirement. It actually makes the entire investing journey smoother. From safety to convenience, the benefits are practical and easy to notice once you start using it.

1. No Worry About Physical Certificates

Managing paper certificates of shares and debentures is not easy. If you miss them, it becomes quite impossible to redeem them. But when you open a demat account, the hassle is solved. You can now manage everything online.

2. Smooth and Hassle-Free Trading

The demat account helps with the automatic process of buying and selling shares. There is no paperwork, no courier, and no follow-ups. This makes trading quicker and stress-free.

3. Faster Access to Money

Because settlements are electronic, sale proceeds reach your bank account faster. This helps when you want to reinvest or are even looking for the funds to be used.

4. All Investments in One Place

A demat account can hold shares, mutual funds, ETFs, bonds, and IPO allotments together. You can now check all your investments in one place and track their movements too. This saves time and avoids confusion as well.

5. Better Tracking and Clear Records

You can check your holdings, past transactions, and statements anytime online. This gives you complete control over your portfolio. This also allows you to make the right decision and avoid any kind of losses.

Demat Account vs Trading Account

The difference becomes clearer when you see both side by side. While both accounts are linked, their purpose is very different. Indeed, these two accounts work together, but they are not similar in nature. So, here are the key points of difference that will help you know what is demat and trading account is and how these two differ.

Both accounts are linked and work together. One helps you trade, and the other keeps your investments safe.

Conclusion

A demat account is the foundation of modern investing. It keeps your investments safe, removes paperwork, and makes buying or selling securities smooth. When combined with a trading account, it allows you to participate in the stock market with ease and clarity. For anyone planning to invest, understanding how a demat account works is one of the key points.

If you are planning to open a demat account, consider Rupeezy. Get all the details and support you need to start investing. With the right tools and calculators combined with expert insights, you would be able to start investing correctly.

FAQs

Can a demat account hold mutual funds and IPO shares?

Yes. A demat account can store various assets. Some of them are mutual fund units, IPO allotments, ETFs, bonds, and government securities in electronic form.

What is the difference between CDSL and NSDL demat accounts?

Both are depositories that hold securities electronically. The main difference depends on which depository your broker is linked with.

Is a demat account useful for long-term investors?

Yes. Long-term investors benefit greatly from a demat account. This includes easy tracking, safe storage, and consolidated statements for all investments.

Are there charges linked to a demat account?

Yes. Brokers may charge some fees for the demat account. These are like account opening fees, annual maintenance charges, and transaction fees, depending on the plan.

Can I close my demat account if I stop investing?

Yes. If you have no more holdings in the account, then you can close the account. Also, you can transfer your holdings from one account to another when you wish to close.