Demat accounts are used for storing shares in electronic format, which is much more convenient, safer, and easy to access.
You just need to have a smart device and an internet connection to use your Demat account. However, you must know specific points related to the demat account to make the most of it.
In this article, we’ve mentioned everything related to how to use a demat account. Read this article carefully to know the entire process.
What is a Demat Account?
A Demat Account (also known as a dematerialized account) is basically an online vault, holding an investor’s security and share certificates in digital format.
It allows you to make investments in shares, bonds, mutual funds, insurance, government securities, and ETFs. These accounts are very similar to bank accounts, but there is no physical certificate maintenance.
SEBI has widely promoted the use of demat accounts, as they are more convenient, easy to use, and cost-effective.
As these accounts completely deal in digital format, you no longer have to face challenges like theft, mutilation, and loss of certificate.
Here, we’ve mentioned several important aspects of a demat account.
- Quickly transfer the shares.
- Reduce the unnecessary paperwork.
- Easy to open and access.
- Facilitate easy tracking of holdings anytime and anywhere.
- The company’s initiative, like bonuses and stock splits, automatically gets updated in your bank account.
- Allows you to hold multiple investment options.
How to Use a Demat Account?
Here is a simple step-by-step process that can help you operate it:
Step 1: Open a Demat Account
First, you have to open a Demat account with a Depository Participant (DP), considering a bank, financial institution, or online platform like Dhan.
They will handle your account and manage all the transactions. Keep identity proof, address proof, and PAN card as essential documents to complete the verification process.
Step 2: Link Your Bank Account
After opening the Demat account, you have to link it to your bank account. It will allow you to have a smooth fund transfer for the buying and selling of investments and securities.
Fill out your bank account details and complete the necessary formalities.
Step 3: Take a Unique Client ID
The Depository Participant (DP) will generate a unique client identification number. You have to use it for every transaction and communication regarding the Demat account.
Step 5: Research and Select Securities
Now, the research part comes in. You have to analyze the market trends and consider the investment goals for selecting the right investment and securities.
It can include stocks, ETFs, mutual funds, etc. Make sure to consider your risk appetite, investment horizon, and diversification strategy while choosing your required stocks or securities.
Step 6: Buying and Selling of Shares
To buy and sell the shares, you must follow the general process of trading:
- Place Order: Use your respective trading medium to buy or sell your shares. You should have all the essential details like stock name, quantity, price, and order type (limit order, market order, etc.).
- Confirm and Execute: Once your order is placed, you’ll receive a confirmation message with transaction details. Shares will be credited or debited from your Demat account after the execution of your trades.
- Settlement: It refers to the exchange of shares and funds between buyers and sellers. Settlement generally takes a business day (technically known as T+1) in India.
In this process, the purchased shares will be credited to your demat account, and funds from sold shares will be transferred to your bank account.
- Track Your Holdings: A Demat account allows you to regularly track your shareholdings and transactions. Your DP will also provide you with an account statement that can help you monitor your transactions, holdings, or any other changes made within your portfolio.
Conclusion
We hope this article helps you understand how you can use the demat account. It can help you make investments in various forms, including stocks, securities, bonds, ETFs, and more.
Once your demat account is ready, you don’t have to get into the hassle of physical paperwork or something. As a result, you will be able to maintain everything in a digital format.
Frequently Asked Questions
Q1. How does a demat account work?
As bank accounts hold money, Demat accounts hold your investments in a digital format. You can easily access it with a laptop or any smart device by using the internet.
Just keep your credentials with you, including your login ID and password.
Q2. Can we withdraw money from a Demat account?
No, you can not directly transfer the money from your demat account to your bank account. Instead, you will be required to use a trading account that acts as a bridge between the demat account and the bank.
Also, you can only encash the amount earned over the sale of securities.
Q3. What can I do with my Demat account?
Demat accounts can help you store and share investments and securities digitally in the digital repository.
It has a varied number of features and easy accessibility that allows you to trade in volumes and track every necessary detail of the shares.
