What is a Demat Account?

Demat is an abbreviation form of dematerialization, it allows investors to hold securities in an electronic form in place of physical form. With the help of demat account trading, investing and monitoring of securities are made easier and convenient.

As per SEBI to trade in stock market it is mandatory to hold a demat account. When an investor trades, it holds shares and securities in an electronic form. When securities are purchased or sold it gets reflected in the account. The account gets opened with NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited) through a Depository Participant (DP). For trading in share market all you require is:

Bank Account

Demat Account

Trading Account

Demat account functions the same way as a bank account when shares are purchased money gets deducted and vice versa. The purpose of dematerialization is to eliminate the risk of holding physical share certificate.

It is essential to hold a demat account because of the following reasons:

Safety is the main concern as holding physical forms was challenging because there were chances of getting damaged, misplaced but this has been removed with the help of demat account as securities are kept in electronic form.

To trade in the share market it is important to hold demat account, without which investors cannot experience trade.

Demat account is convenient and takes less time to buy and sell securities online.

Also, investors can have a corporate advantage like bonus issue; stock split, etc. which are directly updated in the account.

Varieties of investments like equity shares, exchange traded fund, mutual funds, bonds, etc. are held in demat account. The account can be opened without possessing any shares and with zero balance in the account.