A Demat (dematerialised) account allows investors to hold financial securities like stocks, bonds, mutual funds, and exchange-traded funds (ETFs) in electronic format. Opening a demat account is an essential first step for anyone looking to actively trade in the stock markets. Read on to understand why now is the best time to open one, especially for young investors, and the key features of demat accounts.
A Demat account electronically stores your share certificates, converting your physical certificates into electronic shares. Just like we hold money in bank accounts, a demat account holds your stocks, mutual funds, and other investments in electronic format. Leading depository institutions like NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) offer Demat account services in India.
For young investors starting their investment journey, now is the ideal time to for several reasons.
In short, the convenience, low costs, and investing flexibility offered by demat accounts make now the ideal time for young investors to enter the markets.
For active trading and investment in shares, IPOs, bonds, ETFs and other securities, having a demat account is mandatory. Without a demat account, you cannot buy or sell securities on the stock exchanges. However, some fixed-income options like bank FDs, savings schemes, and insurance plans can be invested in without needing a demat account. But for accessing growth-oriented securities markets, opening a demat account is a prerequisite.
Yes, having a demat account is mandatory if you wish to apply for share allotments in Initial Public Offerings (IPOs). When new companies list on the stock exchange via IPOs, shares get credited to the applicant’s demat account if allotted. IPO applications without demat account details are considered incomplete and liable to be rejected. Demat accounts allow easy, digital participation in promising IPOs.
For mutual fund investments, a Demat account is not compulsory. You can invest in mutual funds without needing a demat account. The mutual fund units are held in your name in the respective fund house’s records. However, having a demat account allows you to hold mutual funds in the electronic demat form as well, giving you one consolidated portfolio view. However, this facility is optional and not mandatory for mutual fund investors.
Demat accounts facilitate holding investments in electronic format. Trading accounts are meant specifically for buying/selling securities on stock exchanges and require linked demat accounts. The two serve related but distinct purposes.
While a trading account requires a linked demat account, the demat account can exist independently. For example, you can open a demat account for investing in IPOs without needing a trading account. However, trading accounts require a Demat account for the settlement of trades.
For young investors looking for optimal returns over their long investment horizons, now is the ideal time to enter financial markets by opening a demat account. The convenience of online account opening, lower brokerage costs, and the expanding range of electronically tradable securities available make demat accounts very beneficial. Starting the investing journey early with a demat account can help create long-term wealth by harnessing the power of compounding. It’s the first step towards securing one’s financial future.
Stay informed on all the , real-time updates, and follow all the important headlines in and on Zee News.
