The share market is a great place to invest, provided you have the right tools. One such tool is the demat account. As per the guidelines issued by the Securities and Exchange Board of India (SEBI), a demat account is mandatory for investing in shares on the stock exchange. If you are considering whether to open demat account to start investing in shares, here’s what you need to know.
Demat account basics
To be an investor or trader in the share market, you must fulfil certain prerequisites. A trading account will enable you to buy and sell shares on the stock exchange. But all share market transactions now happen digitally. Where are you going to keep the security certificates? In a demat account, of course.
A demat account is essentially a place to store your digital shareholdings. It is similar to a savings bank account. Only, instead of money, you store all your share certificates in the demat account.
Reasons to open demat account
As mentioned, the SEBI ruling makes it compulsory for share market investors to possess a demat account. But there are also some advantages to holding such an account.
Before the dematerialisation of share market transactions, people traded physical share certificates. This had a disadvantage—you had to be physically present when the certificates were being transferred. Now, thanks to the demat account, all share transfers take place electronically. And since there are no physical certificates, you need not worry about how and where to store them, and the risk of misplacing the documents is minimised. Your demat account serves as a centralised storage area for all your demat asset holdings. To monitor your entire share portfolio, all you have to do is log in.
Physical share certificates could be lost, damaged, or stolen. You could also …