Demat simply means a dematerialized account. The Demat account allows you to hold shares in the electronic format. The Demat account facilitates a safe, easy and convenient trade. The demat account is just like a bank account. The bank account stores cash while the Demat account stores shares.
Demat account is not all about shares. You can invest and store bonds, mutual funds, ETFs, Government Bonds and even life insurance plans in Demat account. You can do this from the comfort of home at just a click of a mouse.
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Well, you need a bank account and a trading account with the Demat account. The Demat account holds stocks, bonds, and mutual funds. A trading account helps buy/sell shares. The bank account gets debited/credit when you buy or sell shares. The bank account is linked to Demat and trading account.
Use Demat Account to Buy Shares: Login to the trading account which is linked to the bank account. You have put in the BUY/SELL request in the trading account for a particular stock. The Depository Participant forwards this to NSE & BSE along with other details.
If you have placed the BUY request, the NSE/BSE looks for a seller. This seller wants to sell the same quantity of shares and an order is sent to the clearance house to debit a particular number of shares from your/seller’s demat account. The shares get credited to the buyer’s demat account.
See Also: How To Open A Demat Account?
You must select a depository participant (DP) like a bank. The DP serves as an agent to the depository like CDSL or NSDL. Keep identity proof, address proof, PAN card and a copy of passport size photo handy. Agree to the terms and conditions and get In-Person verification done.
After successful verification of the applicant, the client ID is given along with transaction password. The demat account is ready and you can store shares/bonds/mutual funds.
With demat account you can check live share prices and look at all share market news which is related to your investments. You get regular information on buybacks, mergers and so on. This helps check risk-return profile and modify the portfolio if necessary.
Regular Demat Account: Used by regular Indian citizens.
Repatriable Demat Account: Used by NRIs for fund transfers abroad.
Non-Repatriable Demat Account: This is for NRIs. You require an NRO account and funds can’t be transferred abroad.
Link demat and trading account to avoid offering Demat account details for each transaction.
You can authorize another person to operate the demat account on your behalf through the power of attorney. The power of attorney must be submitted to the depository participant. This person will then operate the demat account on your behalf.
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