Have you ever seen such a document?
Look at it carefully, it is a share certificate.
This certificate is proof that XYZ person holds some shares of Reliance Industries Limited.
By the way, I will not be surprised to hear this if you say that "I have never seen this certificate."
Because now the era of paper share certificates has passed.
But in such a situation, a question must come to our mind, if now we do not get share certificates, then where are our stocks stored?
What else is the proof that we have bought or sold stock? The answer is the Demat account.
Whenever you buy or sell a share in the stock market, you do not do any physical share exchange.
Instead, the demat account holds all those shares electronically.
In this video, we will explore what is demat account, why we need a demat account, how to open a demat account, and many more.
Let's get started!
The full form of a Demat Account is a "Dematerialized Account".
A Demat account is an electronic account that holds your shares and securities in digital format instead of physical share certificates.
And a demat account holds not only your stocks but also other securities in electronic forms, such as bonds and ETFs.
But why do we need a demat account? Let's understand it.
Whenever we buy something, we take a receipt from the seller as proof, don't we?
So in the same way, before demat accounts came into existence, people were given paper share certificates while buying stocks.
But there were many problems with paper certificates.
First, it could be easily forged, and second, transferring physical shares from one person to another was a difficult and time-consuming process.
In addition, physical certificates are also prone to theft, loss, and damage, which means investors are at risk of losing their investments.
Hence, after 1996, the share certificates were converted into digital form.
Process of converting 'Paper Format Share Certificates' into 'Digital Format Share Certificates' is called "Dematerialization," which we call Demat in short.
Due to the Demat account, investors do not have to worry about lost or damaged share certificates.
A Demat account also gives you easy access to your investments, allowing you to track the performance of your portfolio in real-time.
If you have understood everything till now, then go and type "yes" in the comment section. Done? Yes yes, I am waiting, do it now. Done?
Let's go ahead again. Now comes an important question, with whom should we open a demat account?
Before answering this question, you answer my question. Where do you go when you need to open a savings account?
SBI, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Bank of Baroda, and many more different public and private banks, aren't they?
All these banks are registered and authorized by the Central Bank of our country i.e. Reserve Bank of India.
2 registered depositories in India provide demat account services - Central Depositories Services India Ltd (CDSL) and National Securities Depository Ltd (NSDL).
There is virtually no difference between the two, and both operate under strict SEBI regulations.
But, there's a catch.
Just like we cannot open our account by going directly to RBI, similarly, we cannot approach CDSL and NSDL depositories directly.
And here come DPs i.e. Depository Participants.
Basically, DPs are agents of NSDL and CDSL and they are the link between depositories and investors.
So, in short, if you want to open a Demat account, you have to go through a Depository Participant.
DPs usually can be Groww like brokers, financial institutions like Motilal Oswal, and banks like HDFC and SBI.
So what have we learned so far? Demat Account, Depository, and Depository Participant. Correct? Clear up till now?
Let me clear up one more thing now. Many people get confused between a demat account and a trading account.
Although both are necessary for investing in the stock market, both have different objectives.
A Demat account is like a bank account that holds your shares while a trading account is a platform from where you buy and sell shares.
In other words, in the demat account, you hold your shares, and in the trading account, you place buy and sell orders.
Think of your demat account as a safe locker that holds your shares, and the trading account as a locker.
When you buy or sell shares, the transaction takes place through the trading account, and the shares get credit or debit from your demat account.
Let me explain it to you with an example. Let's say you want to buy 10 shares of Maruti Suzuki India Limited.
Use your trading account to place a 'Buy' order for 10 shares of Maruti Suzuki.
When the transaction is completed by placing the order, the work of the trading account is over.
After purchase, Maruti Suzuki shares will be automatically credited to your demat account. However, this does not happen immediately.
This takes some time, which is currently 1 business day.
Similarly, when you sell these shares, you will first access your trading account and place a 'Sell' order.
Then those shares which are currently in your demat account will be debited from there.
By the way, you do not need to open separate demat and trading accounts.
Whenever you open a demat account through a broker or financial institution, you get access to their trading account as well.
So the difference between a demat and a trading account is also clear?
If yes, then like the video, so that I also know that you understand everything.
Well now if you are thinking that you have come to know everything about the Demat account, then wait.
It is also important to know with whom the last demat account should be opened because it is very important to have a good broker.
Let us discuss some of the factors that you should keep in mind while choosing your broker.
The very first and foremost thing that you should look for is the reputation of the broker and its track record.
Make sure that your broker is registered with SEBI i.e. Securities and Exchange Board of India, and is trustworthy, safe, and reliable.
Another factor is brokerage fees, annual maintenance fees, and other charges. Different brokers have different brokerage charges.
Choose what suits you best in terms of value for money.
The third factor is the user interface and ease of use of the broker's platform.
You can go online and check the trading platform of the brokers, you will slowly find all the blogs and videos.
Then choose the broker that you find easy and convenient to use.
The next factor is features and tools.
You should choose a broker that has all the essential features and tools that you might need as an investor.
Lastly, choose a stockbroker that has a strong customer support team so that you can get support whenever you need it.
Let us now quickly know what is the process of opening a demat account. Trust me, it is a very simple process.
These days opening the Demat and trading account is online, and it takes around 24–48 hours to get your account verified successfully.
All you need to do is choose your preferred broker i.e. Depository Participant (DP),
fill in your personal details, upload documents like PAN card, Aadhaar card, and bank statement, complete your e-KYC, and submit the form.
That’s it! One last thing, just like in the case of bank accounts, you can open multiple demat accounts.
Many people also do this to organize their investments.
For example, one account is for pure long-term investing, and another is for trading.
Managing multiple accounts, reading statements for each account, tracking, and paying annual charges for multiple accounts can be time-taking and costly.
So, open multiple accounts when you really need them.
So that's it for today's video. If you like this video then like it and share it with your friends.
Already have a Demat account? If yes, then which broker do you invest through? Tell us in the comments.
And if you don't have a demat account, I hope today's video has answered all your demat account-related queries,
and you are now in a position to choose the right broker for yourself.
Share this video with your friends who are thinking of investing in the stock market.
If you want to know more about investing in the stock market, subscribe to the Groww channel. Happy investing, bye!