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Demat account opening is essential
for an investor who is planning to buy and sell securities or other investments
in the financial markets. Dematerialization is the process of changing physical
security investments into electronic format.
A Demat account works like
a bank account, in which a person can deposit or withdraw money, and the
corresponding transactions are made in a bank passbook. Similarly, investment
securities are held in electronic form in a Demat account and are credited or
debited accordingly.
A demat account can be
started with a depository participant (DP), which is an agent of the
depositories. There are mainly two depositories in India; National Securities
Depository Limited (NSDL) and Central Depository Services (India) Limited
(CDSL) which are both registered with the Securities and Exchange Board of India
(SEBI)
An investor can open a
demat account with no balance of shares and can maintain a zero balance in
their account. Let’s have a look at the top demat services provided by a DP
that can make investing easier for you!
Demat Account Opening
For demat account
opening, an investor needs to approach a DP and fill out the account opening
form along with required documents (proof of address, proof of residence, etc)
and passport-size photographs. It is also important to carry the original
documents for verification.
The DP will check the
details presented and contact you for in-person verification. Once your
application is processed, the DP will give out an account number and client ID
which you can use to access your demat account online.
Dematerialization Of Existing Mutual Funds And Securities
You can dematerialize
the existing mutual fund units and securities that you have with the help of
the demat services provided by a DP. By doing so, your financial instruments
will automatically reflect in the same demat account that you’ve opened.
Rematerialisation Of Mutual Funds And Securities
Rematerialization is the
process through which an investor can get his electronic holdings converted
into physical certificates. The investor needs to submit the rematerialisation
request to their DP with whom he has a demat account. The DP initiates the
request in the system and blocks the investor’s securities automatically.
The
DP then issues the request to NSDL and forwards the request form to the R&T
(registrar and transfer) agent/issuer. This way, the document is dispatched and
later the investor's blocked balances are debited from the demat account.
Transfer Of Mutual Funds And Securities
An investor can transfer
his/her mutual funds or securities with the help of switching. It is a process
of transferring investments within various financial markets. With this demat
service, an investor can switch from one investment to another, liquidate a
security in exchange for other securities or transfer brokerage assets.
Pledging Of Securities
If an investor wants to
take a loan against their securities that are held in their demat accounts,
then the securities are offered as a deposit to the lender by the investor.
This process is identified as pledging.
The investor can wish to loan a higher
amount at a better valuation as there is little to no risk involved in
contesting the ownership of their securities. Moreover, the time and
documentation process needed to process such loans is also less.
To pledge dematerialized
investments, both the lender and the investor must have a demat account with
the same depository (NSDL or CDSL), but it is not mandatory to have an account
with the same DP. The investor receives the profits generated from the pledged
securities and will receive all the benefits during the duration of the
pledge.
Freezing Or Un-freezing A Demat Account
A demat account holder
can choose to freeze securities in their demat account to help limit unexpected
debit credits or both. An investor can also freeze a certain quantity of a
particular security in the Demat account.
As a result, an investor can reserve
some amount of securities as "not for trade," without disrupting the
flow of other securities in the demat account. The investor can freeze the
account by providing an instruction to their DP with a freeze/unfreeze form
which is available with the DP.
Account Closure
Demat accounts incur
maintenance charges and annual fees, even when you don’t use them for trade.
Thus, it is always a good idea to close all your zero balance or inactive demat
accounts.
If you have demat accounts with active balances, then they can all be
combined into one demat account and the other redundant demat accounts can be
closed. You can close a demat account by submitting the required form and documents
to your DP.
Trading
has come a long way since the inception of dematerialization. Back in the 90s,
the brokers had to yell the prices of a stock for trading and then work
endlessly on filling the physical certificates. However, Demat services have
helped investors to efficiently trade with a more streamlined process!
In conclusion, demat services have revolutionized the way investors manage their securities and investments in the financial markets. From dematerialization to rematerialization, transferring securities, pledging assets, and even freezing or closing accounts, demat services offer a plethora of options to investors, making investing easier and more convenient.
Opening a demat account is the first step towards entering the world of electronic trading, allowing investors to seamlessly buy and sell securities with the click of a button. The process of dematerialization enables investors to convert their physical securities into electronic format, streamlining the management and tracking of their investment portfolio.
Moreover, Demat services such as transferring securities, pledging assets, and freezing or unfreezing accounts provide investors with greater flexibility and control over their investments. Whether it's switching between investments, taking loans against securities, or safeguarding investments from unexpected transactions, demat services empower investors to make informed decisions and optimize their investment strategies.
Furthermore, the convenience of account closure allows investors to consolidate their holdings and streamline their investment accounts, reducing maintenance charges and simplifying portfolio management.
Overall, Demat services have significantly simplified the investment process, allowing investors to trade efficiently and effectively in today's dynamic financial markets. With the evolution of dematerialization, investors can now trade with ease, benefiting from a more streamlined and digitized trading experience.
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