We all know about the importance of demat accounts in the modern trading ecosystem. The introduction of Demat accounts in India in 1996 can be considered to be a revolution for the Indian stock markets. Demat and electronic trading system not only eased up the trading process by eliminated the risks of frauds, forgery, loss etc.
Holding a demat account is the gateway to Indian financial markets, but is it the only benefit of holding a demat? Certainly not! Demat accounts comes with many other benefits or secrets. As an investor you must know about the secrets benefits of holding a demat account.
Let us now discuss about less known the secret benefits of holding a demat account.
1. Security and Safety
The first and foremost secret of holding a demat account is the associated safety and security of your financial assets. Before the introduction of demat accounts, shares were traded in the form of paper certificates and there was always a risk of theft or damage associated with them. It was a very complex process to retrieve duplicate shares in such a loss.
Demat accounts hold all your securities and assets in electronic form ensuring 100 per cent security and safety. The chances of theft or loss of dematerialized assets are very negligible.
2. Seamless Settlements
As we discussed, before the introduction of demat, securities were traded in the form of paper certificates. In case of any transaction of securities, the settlement would take 14 days because the paper certificates were transferred from the seller to the RTA and then to the buyer.
Demat accounts have reduced this settlement duration from 14 days to 2 days saving lot of time and energy of investors.
3. Error Reduction
Trading with physical share certificates required lot of manual paperwork which was prone to various errors. With the introduction of Demat accounts and electronic trading system, computers do most of the work which has reduced the risk of errors significantly.
4. Increased Liquidity
Investment should be liquid so that you can have access to your capital whenever required. Your dematerialized investments in the form of stocks, mutual funds etc. can be used as a collateral to obtain loan from banks which further eases out liquidity and monetization. Such benefits are not possible without a demat account.
5. Storage for Every Other Financial Asset
People often have a misconception that Demat account is used only for holding shares. However, demat account acts as a one-stop storage account for all your financial assets including bonds, exchange traded funds, debentures, unit linked insurance policies etc. Having all your assets at one place makes it easy to track and maintain them.
6. Easy Management and Accounting
Since you have all your financial assets at one place, you can easily manage them and maintain your accounts and records. These records are required at the time of annual audits and tax fillings. The same would not have been the case if your assets were scattered in different accounts or physical forms.
7. Easy Transmission
In the unfortunate incident of death of the demat account holder, the holdings can be easily transferred to the nominee of the next of kin. When you open a demat account the service provider asks you for a nominee, who will be the legal holder of all your holdings after you.
However, when securities were held in physical forms, this transmission was a very complicated process requiring hefty paperwork and efforts.
Conclusion
These are some of the less known benefits or secrets of holding a demat account. Demat account provides access and exposure to various financial assets and is not limited to stock market investing. Demat accounts can be opened on either of the two depositories though a depository participant or demat service provider. You can also get a free demat account from many of the depository participants. Once you have your demat account ready, you are ready to start your investment journey.
Happy Investing!
