Dematerialization has revolutionized the Indian financial sector. A dematerialization account is similar to a bank account and holds your investments in different types of securities. It has simplified trading in various financial products. Furthermore, it offers a safer way to hold all your investments in a single account.
All your details are stored with a depository and data is periodically backed up. Unlike physical certificates, electronically held investments do not have any risks associated with theft, loss, or damage.
Benefits of a demat account
These types of accounts make the entire process of investing, holding, monitoring, and trading quicker, more convenient, and cost-efficient. Here are eight benefits of opening a demat account.
You are able to transfer the securities to your account through a receipt instruction slip (RIS) or a delivery instruction slip (DIS) to execute buy and sell transactions. These slips include all the details that are necessary to execute smooth trades.
You may provide quick and simple instructions to your depository participant (DP) to convert physical certificates to the electronic form. Similarly, you may reconvert your dematerialized holdings to the physical form, in case such conversion is required.
Pledging securities to avail of a loan
Several financial institutions provide you with a loan against the value of the securities held in this type of an account. The securities are used as collateral against the borrowed amount.
Reduction of risks
Physical certificates are exposed to certain risks, such as damage, theft, and loss. Additionally, these have the risk of bad deliveries or fake certificates. All these risks are completely overcome when you hold securities in the demat form.
Maintaining your investments in physical certificates may be tedious. In addition, monitoring and tracking the performance of your overall portfolio is cumbersome if you hold your investments physically. These limitations are easily overcome when you choose to invest in the electronic form. Managing and tracking your portfolio is convenient and quick.
Physical securities include additional costs, such as handling charges, printing and delivery expenses, and stamp duty. All these costs are completely eliminated in the case of securities held in the electronic form. However, these accounts may incur an opening fee and annual maintenance charges. Nonetheless, the reduced costs are significantly more than the charges related to the dematerialization accounts.
Transaction in odd lots
You are able to buy and sell physical securities only in the specified lots. Therefore, you are unable to transact in odd lots. However, electronically held securities may be easily transacted in any quantity as per your requirements. Dealing with odd lots is possible with dematerialized securities.
Corporate benefits and actions
When companies offer interest, refunds, bonus, or dividends, there is no delay in their payouts for demat account holders. All these are automatically credited and updated to your account without any delays.
These types of accounts may be used to hold all your investments, such as shares, bonds, debentures, mutual funds, and others. This makes it convenient for you to hold all your investments in a single place. Furthermore, these accounts may be accessed on a laptop, smartphone, or any other smart device.