A demat account is also called a dematerialized account. Shares and other securities are electronically held in such accounts. The investors do not take physical possession of his certificates regarding the current stocks he is holding. The investment banker opens the Demat account for the investor. A dematerialized account is available for every shareholder for the purpose of transacting. A transaction password and an internet password is required to access the Demat account. The Demat account is now ready for automatic purchase and sales of securities.
Some of the advantages of the Demat account are as follows:
- Demat accounts help avoid the problems usually associated with the certificates of the shares.
- The account holders avoid stamp duty. Else they have to pay a 0.5 percent on physical shares. Filling up of transfer deeds is also not completely necessary.
- The bonus and the shares shall be immediately credited to the account of the shareholder. Transaction costs are effectively lower. Theft and loss are not applicable in this case.
- It reduces the risk of a delayed payment or settlement. This ensures a more significant profit margin due to a substantial increase in the volume of trading. Forgery and lousy delivery are permanently eliminated. The overall trading and confidence of the investors are improved.
The documents required to open a demat account is as follows:
- Aadhar Card
- IT Return – Income Tax Return
- Bank Statement
- PAN Card
- Colour Photos
- Address Proof
- A signed document from the Stock Broker with whom you are holding your business.
Some amount has to be paid to open the account. There also exists an annual maintenance charge which the account holder must bear so that the account does not freeze. A transaction fee also exists, and the cost varies across all the banks. It depends on the country, state, and the type of bank.
Disadvantages of having a Demat Account:
- For the dematerialized securities, supervision of stock brokers is absolutely necessary because they have the capability to manipulate the already existing market.
- Depositories Act, Regulations, Bye-Laws of various depositories, etc. have to be looked into.
- Uncontrolled trading in securities in the case of dematerialized securities.
- The multiple agreements entered at the different levels during the process of dematerialization may worry the investors who are seeking simplicity.
Now, the cost per trade could not be a very high amount. Every transaction also burns a hole in an investor’s pocket. This will eventually sum up to be an enormous amount for the shareholder or account holder. To prevent this from taking place, there should be a balance between the two. That is when one should look forward to Low Brokerage Demat Account. Finding the perfect stock broker for the “lowest brokerage” charges, what makes the most contrast is the amount charged per trade. The other major factor is the transaction prices. Not every broker charges the same amount. The account holder should be wise enough to make the right decision and should have a general idea of the present market rates and profits before approaching any stock broker.