It is thus very important for all such persons indulged in online share trading in India to open a demat and trading account of their own for translating various trading activities in stock market. It is one of the types of account that allows shareholders to hold their securities for instance the shares, bonds, ETFs, mutual funds and other forms of securities in electronic format as opposed to holding physical certificates. Having discussed the basics let’s have a look at the top 5 reasons why online Indian share traders should open a demat account.
- Safety and Security of Stocks
Demat account offers safety and security to your stock holding as the shares are in digital form. If the physical share certificates are lost, missing, destroyed, or stolen, it may be virtually impossible to recover them. However, as demat shares are abstracts and their holding occurs in electronic format, there are no chances of getting them physically damaged or stolen. Your demat account is managed through a unique identification number and password, which only you are privy to, making it highly secure. It is also possible to recover lost shares by contacting the depository participant. Therefore, for protecting your equity shares for stock investment, it is essential to open a demat account.
Besides, demat accounts can facilitate speedy, efficient and secure transactions as opposed to the physical certificates. It is easy to purchase or sell shares without much formalities within a few minutes through an online trading portal connected to your demat account. On the other hand physical share transfers entail a lot of time since form transfer deeds have to be filled. Therefore, the simplicity and security of the transactions themselves are other points that make it more advantageous for stock traders to open a demat account.
Holding securities in demat form can cut down overall costs pertaining to stamp duty and handling charges compared to physical certificates. Moreover, you can easily borrow money against the securities you hold in the demat account in case of any requirement. Hence, demat accounts stand ahead of physical certificates on dimensions of safety, security, ease and cost.
- Portfolio Monitoring and Management
A demat account is usually accompanied by an online trading account which enables you to track your diversified stock portfolio instantly. It enables you to manage your investments in shares and stocks, derivatives, IPOs, bonds, mutual funds etc, all together in one place. This is very useful in reviewing your investment and deciding whether to buy, sell or hold particular stocks in order to improve the overall worth of your investment.
Also, you can easily switch shares between the saving and trading accounts whenever you wish to balance your portfolio. For instance, one can switch particular stocks from trading to a savings account to hold them for the long-term instead of selling. You can also use the securities held in your demat account to provide funds in emergencies rather than selling investments. Therefore, a demat account capacity enables you to manage your diverse investment portfolio in a convenient way.
These also offer period statements so you can easily evaluate your portfolio at any given time of the year. One can precisely calculate average cost, profit/losses on various items and even monitor brokerage, statutory charges etc. incurred on various transactions. This goes a long way in assessing portfolio performance over intervals and therefore rebalancing the portfolio through informed decision. Therefore, to effectively and efficiently monitor and manage the stocks that you invest in a demat account is very helpful.
- Seamless Tax-Filing
During tax season, you find that having a demat account is very convenient since you are able to easily declare and pay your taxes. Every important investment transaction in all the classes is reflected instantly in the demat account thereby giving accurate capital gains/losses. This helps in the fast computation of capital gains tax on your stock profits.
Besides, for payment of taxes, one can easily transfer money from the linked bank account to the tax department without much effort. Online tax payment can also be configured. Thus, simply means that demat accounts make it easier for you to do your tax related things with less time being spent on it freeing up time to manage your portfolio. This alone is one of the major reasons that stock traders opt for opening demat accounts.
- Participation in IPOs and Corporate Events
For participating in the next IPOs or FPOs or other corporate events such as rights issue, bonus shares etc. having a demat account is compulsory. Well acclaimed IPOs when they float their shares, there is massive rush and shares are alloted on a very first come first served basis. Here, as much as a demat account is linked to the trading account, the transfer of allotted shares is much easier than the delayed receipt and registration of physical certificates. This enhances chances of getting an allotment in such preferred issues.
Likewise, the new floats of existing listed companies or other attractive secondary market offers which are available for subscription can be easily taken from the available funds in the trading account. Instant share transfer post allotment can be helpful in booking profits through selling them at listing as soon as possible. It goes without saying that such short term gains cannot be realized if one does not have a demat account because of the registration of physical certificates. Thus, to exploit immediately the potentially attractive money making schemes in the primary markets, a demat account is useful.
- Strong Investor Identity
Having a demat account also helps you in enhancing the image and credibility of a person who actively participates in the stock trading. It provides credibility in your investor profile to the extent that it reflects your real long-term interest in capital markets. In terms of proving the ownership of securities, the securities held in demat form are considered to be in the same manner as the physical certificates. Thus, demat account virtually works like a financial ‘account,’ strengthening your image of an investor.
Furthermore, while making an account with brokers for trading, while applying for an insurance policy, while applying for a loan etc. , details pertaining to the demat account are sought as a mandatory identification proof. Depository participant ID (DP ID) also provides an extra layer of identification in verifying the authenticity of the person as an investor. Therefore, on different occasions, you might require providing demat account details to support your financial personality. This is itself sufficient to ensure that stock traders open demat accounts.
Conclusion
For Indian internet stock traders, open free demat account online is crucial. It has several advantages, such as improved security for digital shares, quicker participation in business events and initial public offerings (IPOs), streamlined portfolio management, and seamless tax reporting. Additionally, in financial affairs, a demat account enhances an investor’s identification and reputation. Because of these benefits, demat accounts are essential for secure, economical, and productive stock trading in the current digital era.