The dematerialization technology used for the Demat Account has made the investing experience easier and simpler for the investors. If you do not know what is Demat Account, the easiest way to define it is a digital account. However, this does not explain the complete details of a Demat account, its uses, etc.
To understand ‘what is Demat Account’, you will have to study it in depth. So, let us start by understanding what it actually is-
What Is Meant By Demat Account?
A Demat Account is a digital account where all your stocks are stored in a digital format. You can compare this with a digital payment bank account where your money is stored in an electronic form rather than in cash. Here too, your stocks are stored in an electronic form and you can use your Demat Account to buy and sell your shares just like your credit and debit money in your bank account.
A Demat Account uses the technology called dematerialization which can convert your physical share certificates into digital or electronic format. The digital medium of transaction and investment is a safer option as your physical share certificates run the risk of getting damaged, stolen, or lost. Here no such thing can happen. Even the speed of transaction is faster here.
You can easily open a Demat Account with the help of a Depository Participant or DP. The DP belongs to a particular depository – an agency from which you have opened your Demat Account. The DP acts as an intermediary between you and the depository.
After having understood what is Demat Account, let us dig into its various uses which will clear the idea further.
Uses Of Demat Account
The uses of Demat Account are many and depending on the various activities it can perform, you can easily do any of these things with your Demat Account.
1. Dematerialization
The benefit of having a Demat Account is that you can use it to convert different types of securities into the electronic format. Whether they are your shares, bonds or mutual fund units you can easily have them stored in your Demat Account. For this, you will have to take the assistance of your DP who, upon your instruction, will do the task of converting your physical securities into the dematerialized form.
You can even get the process reversed if you want to. Your digital stocks can be easily converted into the physical form through the process called rematerialization.
2. Loan Accessibility
The shares stored in your Demat Account can also help you get loans. You can simply apply for a loan by placing your equities in the Demat Account as collateral. Besides, the process of getting a loan will be facilitated much faster compared to the traditional method.
3. Shares Transfer
One of the easy ways of transferring shares is through the Demat Account. As an investor, you can transfer your shares by using the Delivery Instruction Slip (DIS).
4. Monitoring of Equities
By having a Demat Account, you can easily monitor the performance of your equities in the share market. This will help you in taking the right decision regarding your stocks. Whether you should buy new shares or sell the old ones, the Demat Account will assist you in making the correct choice. Also, as you can access the view of your equities’ performance through the Demat Account in your phone app, this will enable you to invest smartly and instantly. The Demat Account will ensure that you are not missing out on any major deal.
Through the Demat Account, different investments can be monitored in one place.
5. Dividends And Profits
If the company you have invested in does profit in the share market, you will be receiving your dividends right into your Demat Account. Since the Demat Account uses online digital technology, you will receive the funds quickly than otherwise. Also, your account will be updated automatically so that you do not have to manually keep records of all the data.
6. Freezing Demat Account
What is Demat Account can benefit differently to different people. But one benefit that all the Demat Account holders unanimously enjoy is the option of freezing their Demat Account. With the help of this option, you can freeze your Demat Account for a specific period of time. During this period no transaction will take place in your account. This option works wonders for people who want to avoid any unpredictable debit or credit from their account. By the facility of freezing your Demat Account, you can avoid unforeseen loss of your equities.
So, these are the options that go in answering what is Demat Account as well as its uses. As it is evident, you can redefine your Demat Account to do things that until now had to be done through different methods.