Advantageous Factors of Having a Demat Account

As demat accounts flourished in the Indian stock market, investors achieved a new way to manage their holdings and grow their wealth. Although trading is done through a trading account, a Demat account is mandatory and essential to store the traded securities. This implies that investors simply cannot trade in the stock market without a Demat account.

This account has significantly reduced the hassles of loss, forgery, and stamp duty expenses. The benefits of opening a Demat account, however, go beyond them. It also makes the investment and trading process more streamlined and secure. Explore all the advantages of having a Demat account.

Important Advantages of Having a Demat Account 

The primary advantage of having a Demat account is that it stores all the shares and securities digitally. Here is a list of all the important advantages of having a demat account:

Security and Safety

The most significant advantage of a Demat account is the assurance and protection it provides. Prior to 1996, the financial assets were stored in physical form. There was always a possibility of losing the share certificates, damaging them, or getting stolen. This implies that it was easy to take ownership of these certifications.

In case of a loss or theft, an investor would have to undergo a lot of paperwork and operational challenges in order to retrieve those assets. At times, there would be no certainty of recovery. However, the digital form of the shares makes them more secure and safe. Now, it is nearly impossible for theft or loss of shares.

Store Multiple Investment Instruments

Unlike physical share certificates, a Demat account allows investors to store numerous securities. It also allows investors to access the securities in one place.

The investment instruments include stocks, securities, mutual funds, and government securities. You can also invest in equities, commodities, Equity Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs), and Futures & Options (F&O) using your online Demat account.

Easier and Faster Trading

Before 1996, when dematerialization was not introduced, the settlement of trade used to be accomplished in up to 14 days. As settlement of trade involves the physical movement of papers related to shares from the seller to the RTA to the buyer, a longer duration cannot be avoided.

The usage of a Demat account has made the settlement cycle as short as 2 working days. It has cut the time and effort the investors have to spend.

Liquidity and Monetisation

Another advantage of Demat accounts is that it makes liquidation of assets easy. You can sell, borrow, or liquidate the stored securities easily. These securities include shares, mutual funds, commodities, and government bonds that you are holding to your name.

Loan Facility

You have the ability to use the securities stored in your online Demat account as collateral to secure loans from several banks. Many banks in India accept these securities as collateral for the loan.

Easy Nomination and Transfer

In case of an investor’s death, the Demat account holder’s securities can be transferred to the nominee quickly. It can be done either by opening a joint demat account or mentioning the next kin as the nominee while opening the demat account.

When the shares were held in physical form, legal heirs were used to claiming their rights on the assets of the account holder who passed away. Easy transmission or transfer of assets, therefore, is one of the prime advantages of Demat accounts.

Faster Settlement

One of the core advantages of a Demat account is that transactions are not only hassle-free but also settle more quickly. This is because the securities are traded in real time.

This implies a quicker transfer of ownership and payment clearance. Indian stock exchanges currently have a T+2 settlement time, meaning that all settlements are made two days after the transaction date, as opposed to the lengthy settlement times that existed prior to Demat.

Conclusion

Having a demat account offers you many benefits. These benefits include eliminating paperwork, reduced errors, liquidity, and increased safety of securities. Demat accounts streamline the process of managing investment, as they consolidate all investments in one place.

Thus, it gives peace of mind to its investors. Overall, the benefits of demat accounts make it a valuable tool for modern investors looking to secure their investment portfolios.