Investing in securities is one of the few potential areas where a customer can invest and grow money with only a little bit of sensible effort. To do so, an individual will need to know and follow a set of rules and regulations. One of the key components of understanding the stock market and art and science of investing is by understanding the concept of dematerialization. Technology and digitalization have changed the methods of investing. Even money making activities have changed considerably and investors have benefitted from it. Stock exchanges have evolved too and stock trading has moved from physical share certificates. It is a good idea for investors to first understand what is demat account and the working of the demat accounts so the investor can earn decent profits.
A demat account will hold all the shares and investments in an electronic or dematerialized form. It also holds all the government securities, bonds, shares, mutual funds and exchange traded funds. It is important to understand that a few bodies and processes to know the complete functioning of a demat account. Having a demat account with a bank which offers fast processing, anytime accessibility and online transaction facility to investor. Banks also credit the demat account right on the day of purchase.
Some of the benefits of a demat account are listed below:
1. Common bank:
A demat account will not only help in trading stocks, it also works for debt instruments like bonds as well as mutual funds. Investors can all the investments in a single demat account.
2. Automatic updates:
Despite being a common account for all the security transactions, and individual not have to provide the details every time an individual deals with the company. A demat account will represent and will hold all the important information regarding the transaction.
3. Delivery risks:
A demat account will have no paperwork involved, the risk of fake shares, theft and wrong deliveris have also been eliminated. It is perhaps one of the biggest benefits of the electronic trading process. The system will always credit securities in the right demat account automatically, regardless of the number and type of shares. It is applicable to other share transactions like stock splits and stock bonuses as well.
4. Odd-lot problem resolved:
One of the biggest obstacles in resolving the settlements as shares were sold in lots. Buyers and sellers cannot transact a single or odd number of securities. Demat account has solved the problem and investors can also trade number of shares they want.
5. Easy to hold:
Paper certificates may get destroyed by a lot of physical possibilities such as water damage, fire, pests, and even a minor damage can cost a fortune. Generally, it is not the case with the demat account, as the demat account also has a nomination facility in case of an account holder.
6. Cost reduction:
A demat account does not require stamp duty for securities. It has resulted in a significant cost reduction.