A dematerialized account, generally known as a Demat account, is a digital account that you can use to trade in the stock market. It was introduced in 1996 for the first time by the National Stock Exchange (NSE). It allowed for the dematerialization of shares, bonds, government securities, and mutual fund certificates from a physical form into a digital form.
Let’s understand more about Demat accounts, their benefits, and the documents required to open one.
What is a Demat account?
A Demat account is a type of account used to keep electronic versions of shares and securities. You can hold in a Demat account – stocks, bonds, mutual funds, government securities, ETFs (exchange-traded funds), and other dematerialized securities.
So, on placing a stock purchase order, all the purchased shares will be credited to your Demat account. Selling works the same way – your account is debited as soon as you sell your shares. The account facilitates a seamless and compliant trading experience.
This eliminates the need to handle physical share certificates while trading. It not only serves as a safe place for your funds but also accelerates transactions and lowers expenses.
There are other advantages to having a Demat account as well. Let’s take a look at them next.
Benefits of a Demat account
The most prominent benefit of a Demat account is its digital format that allows traders to buy and sell shares and securities at the tap of a button. The following are some other benefits of a Demat account:
- Security: since a Demat account is digital, the risk of physical shares being stolen, lost, or destroyed is minimized.
- Protection from forgery and theft: the digital nature of the Demat account ensures that shares cannot be stolen and reduces the risk of forgery.
- Uninterrupted trade and transfer: trading in the digital format is instant and processing times are reduced substantially.
- Reduced cost: paperless account opening eliminates the need for stamp duty and other processing fees, making Demat accounts more cost-effective.
Documents needed to open a Demat account
Opening a Demat account in India is very simple and only requires the following documents:
- ID proof such as your AADHAR card, driving license, passport, or any other ID proof issued by the government or a recognized institute.
- Address proof such as your passport, driving license, registered sale or lease agreement of residence, maintenance or utility bills, a recent bank statement, or passbook.
- Income proof such as Income Tax Returns (ITR), salary slips or form 16, or a net worth certificate from a CA.
- Proof of bank account such as a cancelled cheque.
- PAN card
You can now open a Demat account digitally using the same documents, making the process much easier!