Know How a Demat Account Works Before Opening One

Know How a Demat Account Works Before Opening One

It is mandatory to have a demat or dematerialised account if you want to buy and sell shares through NSE or BSE in India. But while opening an account is now easier than ever, do you know how these accounts work? Read this post to find out.

In the past, physical share certificates were used by the traders every time they wanted to buy or sell shares. The share certificates were sent back to the company for transferring the shares. Demat or dematerialised accounts have replaced this traditional practice, and now there is no need to use share certificates for any transactions on exchanges like NSE and BSE.

SEBI has recently banned buying and selling of shares through physical share certificates unless they are used for transposition or transmission of the securities. This move has made the dematerialised account a must for anyone who wants to trade on stock exchanges.

But while opening an account is now easier than ever, do you know how a dematerialised account works? Let us have a look-

What is a Dematerialized Account?

A demat or dematerialised account is just like your bank account. When you deposit money in your bank account, you no longer physically hold the money. The deposited money is only an entry in the passbook of your bank.

Similarly, a dematerialised account stores your securities in a dematerialised or electronic format and eliminates the need for you to hold on to any physical share certificates.

Working of a Dematerialized Account

The broker from whom you have opened your dematerialised account will be responsible for managing all your buy and sell transactions. So, when you purchase any shares, your broker will be responsible for crediting the same to your dematerialised account and the same can be seen in your holdings statement. Generally, brokers take T+2 (Trading Day+2 Days) for crediting your share purchase.

If you want to sell any shares from your holdings, you are required to give a delivery instruction of the same to your broker. Once the transaction is confirmed, the shares will be debited from your account, and you will receive the money as per the rate at which you sold the shares and the number of shares you sold.

Depositories and Trading Account

Currently, there are two Indian depositories- CDSL (Central Depository Services Limited) and NSDL (National Securities Depositories Limited). It is through these depositories that the shares are stored in an electronic format. Your broker would be registered to one of the two depositories.

A dematerialised account comes with a trading account where your trading money is stored. It is from this account that money is debited and credited when you buy and sell shares. So, the dematerialised account holds your shares and the trading account holds your money.

What Can Be Traded with a Dematerialized Account?

Apart from shares of companies (equity), most brokers now also allow you to trade commodities and currencies through a dematerialised account. Moreover, some of them also offer mutual funds.

When selecting a broker for your demat account, make sure that you select someone who is reputed in the industry, allows you to trade across multiple exchanges, and offers an advanced online trading platform and mobile app.

Conclusion

By eliminating the hassles of handling shares in physical format, dematerialised accounts have made share trading easier, faster, and more convenient.

Now that you know how these accounts work, you can get in touch with any reputed broker to get yourself a dematerialised account and start trading. Many of the brokers now also allow you to open an account online.

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