How does a Demat Account Work Online in India | Espresso

How Does Demat Account Work?

The stock market has witnessed a fascinating evolution. From close to a hundred years of traders ardently shouting on the trading floors to buy and sell shares, the capital market has become more accessible to investors with the introduction of a demat account in India.

 

Published on 10 January 2022

It was the National Stock Exchange (NSE) that changed the capital market forever in 1996 by introducing dematerialisation of shares where the physical shares of an individual were converted and stored into an electronic format in a demat account. Today, a demat account online not only holds shares and securities but also stores other financial commodities such as stored into an electronic format in a demat account. equity, bonds, government securities, mutual funds, etc.

Let us explore in greater detail what a demat account is and how a demat account works.

What is a Demat Account?

For ease of understanding, think of a demat account as a bank account. Where a bank account holds your money, a demat account online holds the financial commodities of the capital market. Having a demat account online enables a swift, convenient, and hassle-free trade and transfer of shares.

Formerly, stocks and securities were solely available as physical certificates, which made transactions and trading both cumbersome and insecure. However, with a demat account online, the theft, damage, and investors scammed with being sold fake certificates was done away with.

In 2019, the Securities and Exchange Board of India mandated having a demat account in India for any investor who wished to trade in the stock market. While this does not mean that one cannot hold physical shares, it only necessitates having a demat account online to sell and transfer shares.

This step was essentially taken to enhance the convenience and facilitate safer transactions while buying, selling, and transferring the shares of a company.

Benefits of Having a Demat Account in India

In addition to providing a safe entry ticket into the capital market, a demat account also acts as a safe deposit of your savings and financial commodities. Here are some of the most important benefits of having a demat account online:

  • Trading Account:Your demat account can only hold your shares and securities. For trading and selling these financial assets, the investor needs to have a trading account. A demat account in India is only meant to hold the shares securely.
    Know More: Guide to Open a Demat Account

When you open a demat account, you get linked to a trading account with a unique ID and password to access these from the convenience of your home. To buy or sell any shares, you need to login into your trading account, which is linked to your bank account. When you input a buy or sell request into your trading account, your depository participant immediately forwards this request to the stock exchange.

Chandresh Khona
Team Espresso

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