Over the last few decades, the investment market scenario has changed totally. Among the innovations of recent times, a Demat account is one of the most important ones. However, whether you have many years of investment experiences or just entering the stock market, one needs to know how it works and all the benefits a Demat account offers. In this blog we will tell you all about Demat account, how it works, and its advantages for an investor.

Like savings account is meant for keeping your savings the Demat Account is like an electronic portfolio that keeps your shares and securities in electronic format. This removes the need for physical share certificates, thus making transactions safer and quicker.

Dematerialized accounts were introduced in India in 1996 for the purpose of simplifying NSE transactions. Such demat accounts have completely altered the old way of holding shares. Listed companies have a mandatory requirement of dematerialisation of all their share and debenture holdings, as the SEBI regulations necessitate hassle-free exchange through the stock exchanges.

Apart from shares, a Demat account can hold bonds, ETFs, mutual funds, and other market assets so that investors can manage all their securities from a single place.

How Does a Demat Account Work?

To know how a Demat account works, it is important to know how it interacts with a trading account as well as a bank account.

• Account Linking:

  
  When you open an account to trade in the share market, this is called a Demat account. Now, when you do that, it gets linked with your trading account and bank account, so you can buy or sell shares without any hitch.

• Trading Process:

  
  When you place an order for buying or selling a stock through your trading account the request raised by your DP to the concerned stock exchange. It then seeks out a counterparty-a seller when you are buying or buyer when you are selling.

• Clearing and Settlement:

  
  The concerned stock exchange forwards the transaction to the clearing house in case a match is available. For buying shares, clearing house will debit seller's Demat account and give credits to your demat account. The money for making the trade is debited from your bank account which is linked with your demat account.
  
  The entire process is online, so it is quick, and there is hardly any transaction risk as compared to physical share certificates.

Advantages of a Demat Account

The demat account makes transactions easier and more convenient while trading and managing investments. Here are the top advantages:

• Eliminates the Need for Physical Share Certificates

  
  Shareholders holding a demat account do not have to worry about the need to hold or otherwise deal with physical share certificates. This eliminates the possibility of causing damage, losing, counterfeiting, or theft that is possible with physical certificates. Your securities are kept safe digitally. In case, you have your uncles or relatives who are still holding physical certificates help them to switch to demat account.

• Better efficiency and quick transactions

  
  One of the most substantial advantages of a Demat account lies in speed and efficiency in completing stock market transactions. While all this was possible within days or weeks through using physical certificates, now all this happens within hours. The process of investing just got that much more convenient and, by extension, time-efficient because of this streamlined process.

• Easy monitoring from anywhere

  
  A Demat account enables you to view, transfer, and monitor all your investments from anywhere and at any time. You can track your stocks portfolio, bonds, ETFs, and other securities as long as you have internet banking access. In fact, it cannot get easier than this with the ease of access offered by Demat accounts for tracking your investments.

• Consolidation with Bank Accounts

  
  Another advantage is that you can connect your Demat account with your bank account. In this way, you might be allowed to have arrangements for electronic fund transfer relating to funds transfer towards or from your Demat account so that you could use such funds for funding your trades or withdrawing the earnings of your investments.

• Nomination Facility

  
  Demat accounts offer a nomination facility wherein one can nominate a nominee in case he dies so that the nominee inherits his assets. In other words, it provides relief and simplifies estate planning for investors.

• Account Freezing Option

  
  You can freeze your Demat account for a set period, as you may so want. Freezing of the account stops unauthorized or unwanted transactions while the account remains inactive during that particular period. It adds another level of safety over and above your investments.

How to Open a Demat Account?

It is very easy to open a Demat account. Such an account can be opened through any DP, whether it is a bank, a brokerage firm, or any financial institution. Here is a step-by-step guide on how to open a Demat account:

• Select a Depository Participant:

  
  Decide on a DP that offers Demat services. Most banks and brokers offer this.

• KYC Documents:

  
  You will be required to provide identification proof and address proof and would be carrying your PAN card for KYC verification.

• Application:

  
  Your DP will fill up the application forms, and after completing the application form, you would need to verify your details. After approval of the application, your Demat account shall be activated and become operational. In online this process can be done in under 20 minutes.

Why Demat Accounts Are Important to the Modern Investor?

Since the inception of dematerialisation in securities market, a Demat account is must to invest in equity directly. It gives safe, efficient, and hassle-free holding and trading in securities. With the removal of physical share certificates, streamlining of transactions, and remote access, Demat accounts have changed the way investors reach out to the stock market. You can hold other instrument like mutual funds as well in your demat account to keep a clear picture of your portfolio.

The most important first step in managing and growing your wealth through the stock market as an experienced investor or a newcomer is to open a Demat account.