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What is a Demat Account and how does it work? | Demat Account in India

December 05, 2021 , , , , , , , ,

What is a Demat Account and how does it work?

What is a Demat Account and how does it work?, Demat Account in India
What is a Demat Account


What is a Demat Account? | Demat Account kya hai?

Demat account is the short form of Dematerialized Account, and the word dematerialized means to convert any paper document into digital form, saved in digital form. And account means keeping a record of things. Here the question is, which thing is dematerialized, it belongs to the thing.

If we go back in time, there was no digital banking at that time, that's why people used to keep money in cash; all transactions were done in cash. The problem was that people had to carry a lot and there used to be incidents of looting, money used to get lost, or notes used to get old and torn. Seeing this, people had to handle cash very carefully. If we talk about now, since the advent of digital banking, everything has changed since then. Now very few people travel with cash. In digital banking, we have money in digital format which is much safer than cash.

In the same way, earlier if someone used to buy a share, he would get a share certificate which was in the form of paper, this certificate was the only proof that who was the owner of the share. There were a lot of problems in this, such as share certificates were lost, people used to make fake share certificates, or they got spoiled by keeping for certificates. Due to these reasons, investors used to face many problems. Because of all these problems, the government decided in 1996 that from now on all share certificates will be in digital form, meaning all share certificates will now be dematerialized and will be saved in digital form. And buy-sell of shares will also be in the account in digital form; this account is called Demat account.

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Our money is saved digitally and what we spend is recorded in our bank account. This means such an account in which our purchased shares are saved in digital form and where our buy-sell takes place, is a Demat account. So if you buy shares of any company then it gets saved in your Demat account. You can think of a Demat account as a part where only and only shares are kept. If you buy a share, then the share gets saved by going to this page, even if you sell the share, it is saved by exiting this page.

 

Why is Demat Account Important?

Importance of Demat Account
Importance of Demat Account

We just learned that if we buy any share, then it gets saved in our Demat account. If we want to buy and keep shares of any company, then we have to open a Demat account and without a Demat account, we cannot buy-sell shares.

 

Where Does Demat Account Get Open?

Just like our bank account is opened in any bank and the record of all our money is in our bank account, in the same way, the Demat account is opened in a depository company. Depository means the place to store and what is stored in the depository? Yes, it's shares. Just a small difference is that there are hundreds of banks in India where we can get our bank account opened, but for the Demat account, there are only two depositories in India where we can get the Demat account opened. The name of the first depository is CDSL {Central Depository Service Limited} and the name of the second depository is NSDL {National Securities Depository Limited}, our Demat account is opened only in these two depositories.

Now this question will come to your mind that how to open Demat accounts in brokerage firms? Friends, we cannot get the account opened directly in the depository like a bank account. Demat account is always opened through any brokerage firm. Any brokerage firm is linked to these two depositories. There are lakhs of brokerage firms in India, all of which are linked to either CDSL or NSDL, if you open a Demat account from any brokerage firm then your account will be open either in CDSL or in NSDL.

 

How much money does it cost to open a Demat Account?

Every broker has its charge for the Demat account, some broker charges up to 300, 500, 1000, or even 1500, but in the middle of all this, such brokers open your Demat account for free. Friends, if you find a broker who opens a Demat account for free then be alert because the commission charges of many such brokers firms are very high.

They open our account for free because they know that later they will earn more money from commission. So my opinion is that if a brokerage firm takes a little charge, then no problem, you can open the account because you will have to pay more commission for the year in order to save a little charge.

 

What is the best place to open a Demat Account? | Which broker chooses?

It is a bit difficult to answer this question because this person depends on the person. It is not at all necessary that you should like what I like, but I would like to give you some advice from the point of view of my investing. Savings are more important than investing, if you do not save money, then from where will you get to invest? Warren Buffett has rightly said one thing that a rupee saved is not at all different from a rupee earned.

I would like to advise you to open such a Demat account in which the account opening fee may be charged but the commission is very less so that you can save thousands and lakhs of rupees in the long run. And you can earn more money by reinvesting this saved money. Before taking any decision, especially money-related, you must think about what will be the result in the long run. Believe me, with this little thinking, you can save thousands of lakhs of rupees.

 

DISCLAIMER: This is an Education program and is NOT registered under any SEBI rules. All the information we provide is for educational purposes only and you should consult your financial advisor before making any investment decision. Also, WE DO NOT PROVIDE any kind of Stock Advice or Stock Advice or Portfolios. Description & Pressed Comments may contain affiliate links, which means that if you click on one of the product links, we will receive a small commission.

 

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