A Demat account or a dematerialized account is an account that holds all of your electronic securities. Demat accounts have gained massive popularity in recent years, owing to their numerous benefits. In this article, we will discuss why a Demat account is a must-have for every investor.
The first and most important reason why you should have a Demat account is that it makes the holding of securities electronic. It is secure and convenient. In the past, investors held physical securities, meaning that they had a piece of paper with the details of their investments. This made those investments susceptible to theft or loss. With a Demat account, your securities are held as electronic records in your account- making them easier to access.
Elimination of Physical Securities
Demat accounts have eliminated the need to hold physical securities. Investors who held physical securities risked losing them, damaging them, or facing the threat of theft. With a Demat account, there is no risk of physical damage, and the records are available and easily accessible online.
Prevention of Fraud
Fraud has always been a threat in the world of finance. The risk of fraud is, unfortunately, higher for physical securities than for electronic securities. Demat accounts allow investors to invest in a transparent and secure environment. With electronic records, records of transactions and holding of securities are available online and can be verified easily.
Easy and Fast Transfer of Securities
Transferring physical securities includes endorsement, which can be a time-consuming and sometimes cumbersome process. With Demat accounts, transfer of securities is hassle-free. The investor has to provide instruction to the designated Depository Participant, and the dematerialization process begins and is completed within a couple of days.
Reduced Administrative Costs
Holding physical securities comes with significant administrative costs. The costs are not only for the paperwork involved in holding physical securities but also the risks associated with this method of holding securities. Demat accounts have eliminated the need for paperwork, making it a lot more affordable to invest in company shares with promoters now opting for a Demat account during Initial Public Offerings (IPO’s) to make investing affordable for retail investors.
Increased Liquidity in the Market
Demat accounts have undoubtedly increased liquidity in the market by making trading and holding of electronic securities much more popular. Traditionally, stocks were not liquid assets as they were held as physical securities and trading them included several intermediaries. With the help of Demat accounts, shares can be easily transferred or traded as their holding is purely electronic, which has led to an increase in investor participation in the market, thereby increasing liquidity.
Demat accounts provide investors with better visibility of their investments. Investors receive account statements with detailed information on their holdings and transactions. This information is available online and can be viewed wherever you are and whenever you want.
Ease of Use
Demat accounts are easy to use. With advances in technology, trading and managing securities has become more accessible. The process of opening an account has also become more streamlined and straightforward. Investors can open an account online, the process of which is simple and intuitive.