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How to Use Demat Account for Trading?

Holding documents in digitized form has become more popular than ever before. The reason for that is very simple. Documents stored in digital form are more secure and easily accessible.

Just as digital wallets like Google Pay, Paytm helps you transact money digitally without the need to carry physical cash, similarly, a Demat & Trading Account helps you transact in shares digitally.

A Demat Account holds all the shares you’ve purchased or dematerialized (including stocks, bonds, mutual funds, Exchange Traded Funds etc.) in electronic form. It’s mandatory to have a Open Demat account & Trading account, if you wish to trade in the stock market.

Now, if you are a new investor, you may find the technicalities a little difficult to understand because you haven’t operated a Demat Account before or may not have bought shares previously using a Demat Account.

So how do you go about it? Let’s take a look.

In today's digital age, handling financial transactions securely and efficiently has become more accessible than ever. Much like digital wallets, which allow you to pay for goods and services without physical cash, demat accounts offer a digital solution for managing shares. Understanding how to use demat account is crucial for anyone looking to enter the world of online trading.

With a demat account, all your shares and securities are stored in electronic form, providing both safety and convenience. This account allows you to conduct transactions quickly and securely, making the trading process smooth and efficient. Learning how to use demat account can empower you to take control of your investments and participate actively in the stock market.

What is a Demat Account?

A Demat Account, short for Dematerialized Account, is an account that holds your securities and shares in electronic form. It eliminates the need for physical share certificates, reducing the risks of loss, theft, or damage. By converting physical shares into electronic format, the use of a Demat Account is that simplifies the process of trading, making it more secure and efficient. With a Demat Account, you can easily buy, hold, and sell shares, bonds, mutual funds, and other securities from the comfort of your home.

How to operate a demat account?

Operating a demat account is straightforward but requires careful handling to ensure smooth and secure transactions. A demat account is used to hold shares and securities in an electronic format, eliminating the risks associated with physical certificates. Here is how you can operate a demat account:

  1. Login to your demat account: Use the credentials provided by your Depository Participant (DP) to access your account through the web portal or mobile app.
  2. View holdings and statements: Regularly check your holdings, transaction history, and demat statements to keep track of investments and verify any changes.
  3. Buy shares: Place a buy order through your broker’s trading platform. Once the transaction is completed, the shares are automatically credited to your demat account.
  4. Sell shares: Place a sell order and authorise the delivery of shares from your demat account through the trading platform. After settlement, proceeds are credited to your bank account.
  5. Update personal information: Ensure that any changes in address, bank details, or contact information are updated promptly with your DP to avoid communication gaps.
  6. Pledge or unpledge shares: You can pledge shares held in your demat account as collateral for loans and later unpledge them after repayment.
  7. Monitor corporate actions: Track dividends, bonus issues, rights issues, or stock splits announced by companies where you hold shares. These updates are reflected directly in your demat account.
  8. Secure your account: Always use strong passwords, enable two-factor authentication, and regularly update your login credentials to maintain account security.

Step-by-Step Guide to Using a Demat Account

Opening, managing, and using a Demat Account is straightforward.

At first, you need to select a Depository Participant (DP) to open a Demat Account. After that, you need to fill out the account opening form along with submission of the identity proof, address proof, PAN card, and a photograph. Once you upload the documents and select the brokerage plan, an in-person verification gets initiated. Once the application is submitted successfully and verification is done, client ID and password is generated. You can use it to login to your Demat & Trading account online.

You need to note that other than a Demat Account, you would also require a Trading Account to perform the buying and selling of the shares. Once you place order to buy, a request is sent to the stock exchange. Once the order matches with another investor who placed a sell request at a similar price, the order gets executed. It takes T+2 days for the credit or debit of shares in a Demat Account after the execution of trade and the confirmation from the exchange. (T is the day of trade).

Below is a step-by-step guide on how to use demat account effectively for trading purposes.

Step 1 – Open Your Demat Account

To start using a demat account, you first need to open one through a Depository Participant (DP) associated with depositories like NSDL or CDSL. The DP could be a brokerage firm or bank. Complete the account opening process by filling in the required forms and submitting your KYC documents.

Step 2 – Link Your Demat Account to a Trading Account

Once your demat account is active, link it to a trading account to begin transactions. You can link this to a savings or current bank account for ease of fund transfers, which will allow you to buy and sell shares seamlessly.

Step 3 – Add Funds to Your Trading Account

To use how to use demat account fully for trading, you need to add funds to your linked trading account. Once funds are available, you can place buy orders, and purchased shares will be stored in your demat account in electronic form.

Step 4 – Place Buy and Sell Orders

With funds in your trading account and your demat account ready, you can now buy and sell shares. Buy orders will credit shares to your demat account, while sell orders will debit shares from it.

What is the aim of having a demat account?

The primary aim of having a demat account is to facilitate the seamless and secure handling of financial securities in electronic form. Here are the main objectives:

  1. Safe storage: Eliminate risks of theft, loss, or damage associated with physical share certificates.
  2. Easy trading: Enable quick buying and selling of shares without physical paperwork, simplifying the trading process.
  3. Faster settlement: Ensure quick and efficient settlement of trades, usually within T+1 working day.
  4. Reduced costs: Minimise stamp duty and handling charges that are otherwise applicable to physical certificates.
  5. Access to a range of securities: Hold various financial instruments like equities, bonds, mutual fund units, government securities, and ETFs in a single account.
  6. Efficient record keeping: Maintain detailed transaction history, account statements, and holdings electronically for easy tracking and reporting.
  7. Pledging facility: Use securities as collateral for loans without physically transferring ownership.
  8. Ease of transfer: Facilitate seamless transfer of shares during gifting, inheritance, or sale, without cumbersome documentation.
  9. Participation in corporate actions: Receive benefits like dividends, interest, bonus shares, and rights issues directly into your demat account.
  10. Enhanced convenience: Manage investments online from anywhere, without visiting physical offices or handling paper-based certificates.

What are the Important Terms Associated with a Demat Account?

Following are some of the important terms associated with a Demat Account:

  • Dematerialize Securities – All investments are stored in electronic format now. All the physical certificates can now be converted into electronic forms and held in a Demat Account. This process is called Dematerialization.
  • Rematerialize Securities – It’s the process by which an individual can reconvert their Demat holdings in digital form into physical form. An RRF (Rematerialization Request Form) needs to be submitted to the DP for such reconversion.
  • Central Depositories – It is a central agency that keeps all the information associated with Demat Accounts. There are two Central Depositories in India: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). NSDL is the first depository in India to offer trading and settlement of securities in a Demat format.
  • Depository Participants – Depository Participants are registered agents of the Depositories. They act as a mediator between NSDL, CDSL, and traders and investors. An investor has to open an account in a depository with the help of a DP.
  • Electronic Certificate – As and when you buy equity shares, your ownership of those shares is marked via a certificate that’s available in electronic form and stored in your Demat Account. It’s known as an electronic certificate.
  • Portfolio Holding – A Demat Account holds all your shares and securities in electronic form. It helps keep a track of all your investments in shares, bonds, Exchange Traded Funds, Mutual Funds in one place. Together they are known as portfolio holding. You can access all of them through your Demat Account.

How to Operate a Demat Account?

Operating a Demat Account is straightforward once it’s set up. To start, you’ll need a client ID and password provided by your Depository Participant (DP) after opening the account. Log in to your online trading platform using these credentials. From here, you can view your portfolio, check your holdings, and monitor market trends. To buy or sell securities, place an order through the trading platform. Your DP will process the transaction, and your Demat Account will be updated accordingly. Always ensure you have sufficient funds in your linked bank account to cover purchases.

Cost Involved in the Use of Demat Account

The use of Demat Account comes with certain costs. Firstly, there is an account opening fee which can vary depending on the DP. Annual maintenance charges (AMC) are levied to keep the account active, typically ranging from ₹300 to ₹800 annually. Transaction fees are charged for buying and selling securities, which can be a flat fee or a percentage of the transaction value. Additionally, there may be charges for dematerialization and rematerialization of shares. It’s important to understand these costs upfront to manage your investments effectively and avoid unexpected expenses.

Conclusion

To sum up, we can conveniently say that with the advent of the Demat Account, trading has become more accessible and swifter. Additionally, a Demat Account addresses the safety concern by safely storing the securities in an electronic form. Besides, you cannot trade in the share market if you don’t have a Demat & Trading Account. All said and done, you need to identify your requirements and objectives and select the right service provider accordingly.

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Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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