Demat Account
by 5paisa Research Team Last Updated: 2022-10-17T17:54:37+05:30

Understanding the advantages of a demat account

To purchase, hold and sell shares and other securities, you need a demat account. It is a digitally functioning account used to hold dematerialized securities, including stocks, mutual funds, bonds, exchange-traded funds (ETF’s), etc. 

Let us understand the key benefits of a demat account

1. Reduced risk of loss of documents - Chances of losing documents are high in physical bonds and shares. The shares can even get misplaced if you face any natural disaster that compels you to shift. Hence, storing shares in an online format is a far better and safe option as it enables you to have a permanent digital record of your share.

2. Avoiding forgery - In the case of physical shares or bonds, the risk of fraud is high. But when it comes to operating a paperless demat account, you have all the necessary details and authentic data in your record, thereby avoiding forgery or impersonation.

3. Loan Facility - Apart from using it as a security deposit for your savings, you can access various bank loans through the securities maintained in your demat account. The securities can be guaranteed as collateral for getting a loan from your bank.

4. Cost-Effective - One of the evident benefits of online transactions is cost reduction. Similarly, if you choose to open a Demat account online, it can ease you off the expenses like stamp duty and other handling charges necessary for physical bonds. The only charge that is payable in a Demat account is for brokerage. However, if you opt for discount brokers, you shall be able to save more.

5. Time Saver - The time taken for buying and selling shares using a Demat account is minimal. Hence, the liquidity of shares is easier in this case. On the other hand, transferring physical shares was a lengthy process. Online transactions are processed in a jiffy because the securities are stored in a dematerialised form.

6. Easy Tracking- Another benefit that you can avail yourself of while you open Demat account is that the number of physical documents is nil. It invariably reduces efforts to keep track of each of them. Therefore, you do not need to maintain a record manually. All your documents are safely held along with the record of each investment.

7. No TDS on Demat Securities - One of the issues taxpayers face is TDS or Tax Deduction at Source. Nonetheless, the CBDT- Central Board of Direct Taxes has granted dispensation from TDS when a Demat account holder makes payments from his account. Additionally, no TDS is deducted from the interest that you receive on your bonds and securities. For exemption from TDS, make sure you save your securities in the Demat mode, and they are listed on NSE and BSE.

8. Global Investment - Globalisation is significantly encouraged with the proliferation of Demat accounts. Foreign investors are given easy access to the Indian stock market through these accounts, thereby benefitting the economy of India.


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Types of Demat Accounts

There are three types of Demat Accounts:

  1. Regular Account- This account is basically for traders residing in India.
  2. Repatriable Account- Non-Resident Indians use this account, and it plays an active role in transferring funds abroad. The Repatriable account needs to be linked with the NRE bank account.
  3. Non-Repatriable Account- This is a variant of Repatriable Account, and Non-Resident Indians also use it. However, funds cannot be transferred abroad through this account, and it needs an associated NRO bank account to function effectively.

Also Read: How to Use a Demat Account?

Credentials Mandatory for a Demat Account

At the time of Demat Account opening, you need to provide some details for security purposes. The list below contain the documents required for Demat account creation:

  1. Identity Proof (E.g., Passport, Aadhaar, Voter ID Card, PAN, Driving License)
  2. Address Proof (E.g., Passport, Voter ID Card, Ration Card, Insurance Copy, Utility Bills)
  3. Proof of Income (E.g., Copy of Income Tax Return Acknowledgement, Salary Slip, Current bank account statement for the past 6 months, Statement of Demat Account holding)
  4. Proof of Bank Account (E.g., Cancelled Cheque, Photocopy of Passbook)
  5. Permanent Account Number (PAN) card
  6. Recent passport size photographs

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We provide the best Demat account so that our customers enjoy a smooth trading experience. 5paisa is the one-stop destination for financial services, including Mutual funds’ investments, Equity Trading, Insurance, Research Products, Commodity and Currency Trading, Robo Advisory, Personal Loans, etc.

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