Myths & Facts about Demat Account
New Delhi : Trading was once regarded as an investment opportunity exclusively available to a small number of people. Due to the proliferation of online tools and platforms, trading is now available to practically anybody who has access to the digital spectrum. To begin investing in the stock market with minimal effort, you only need an internet connection, some money, and some time.
For a market to function, there must be people involved. The stock market's value rises as long as there are buyers and sellers. Misinformation about online trading is one of the main problems that hold back potential traders and investors in India. In addition, there are numerous misconceptions about Demat accounts; therefore, it's essential to know the difference between the two.
So that we can debunk these misconceptions and learn more about what a Demat account is, let's take a closer look at it.
What is Demat Account?
It is the DP, not the issuer, that holds the Dematerialized account of the account holder. It is possible to open these accounts for both private individuals and businesses. There is no physical evidence of the ownership of securities held in these accounts, simply a record of transactions in the books.
Investing in stocks or mutual funds has its advantages and disadvantages. If you have a physical share certificate, you can use it to buy and sell. When dealing with dematerialized shares, you can open Demat account online. To avoid paying tax on every purchase you make, open a Demat account after you purchase and transfer ownership of shares to yourself.
The difference between the stock market and the stock exchange is also a cause of perplexity for investors. Many people think of them as two separate entities, yet they are the same. Equities are traded on the market in India, while the stock exchange is used to conduct trades between investors.
What Is the Process for Opening a Demat Account?
To conduct business in India, actual certificates of ownership were exchanged. SEBI created Demat accounts in 1996, which revolutionized the process of investing by making it a completely digital one. SEBI introduced a Demat account, one of the most significant elements.
In the financial world, the term "Demat" refers to converting physical securities into digital ones. This means that a trader does not have to deal with the inconveniences of physical security while using a Demat account. Investing in securities and making trades has thus become a much safer, faster, and more efficient process.
Myth: Only Demat accounts can hold shares
In most investors' minds, a Demat account can only be used to store shares. You can't keep any of your other investments, such as stocks or bonds, in this account.
Fact: A Demat account can be used for a variety of things.
This type of account can house all of your stock market instruments in one place. This covers stocks, mutual funds, ETFs, money market instruments, government securities, etc. Dematerialization is made possible through this account.
Myth: Your Demat account is at risk.
Misinformation regarding your investments might be easily obtained because of the online nature of demat trading.
Fact: Trading using Demat accounts is risk-free
By law, Demat account providers are required by the Securities and Exchange Board of India (SEBI) to provide safe and secure trading platforms. To complete a transaction, you must be logged into your account. A one-time password or OTP delivered to your registered mobile number may also be required by some middlemen. While logging in or doing a transaction, you will be required to perform additional authentication steps. Your Investment Advisor will help you in any issue of your Demat account
Myth: Only one Demat account can be opened at a time.
Inconveniently, many investors assume that they can only open one Demat account.
Fact: Open as many Demat accounts as you'd like.
Creating as many Demat accounts as you'd like is entirely unrestricted. Investors who want to diversify their portfolios and track each one independently may find this helpful. For example, if you've invested in multiple scripts or funds, it's possible to keep your shares in one Demat account while opening another one for your mutual funds.
Myth: Opening a Demat account is free of charge.
If you open a Demat account online, some investors assume you don't have to pay anything.
Fact: You must pay both account opening and maintenance fees to open an account.
Both investment firms and banks charge account opening and annual account maintenance fees. As a result of the fact that some banks and investment organizations do not charge for account opening, this misunderstanding about Demat information is perpetuated. If you don't have to pay an account opening fee, you may be charged a more significant yearly account maintenance fee, meaning your expenses could be the same or even more critical.
Myth: You cannot have a zero balance in your Demat account.
An investor's Demat account, according to popular belief, must always contain at least one copy of a script.
Fact: Financial instruments are not required to be held in the account.
In other words, Demat accounts have no money in them, just like a bank account with no money in it. Just because you have this account doesn't mean that you have to invest in the stock market.
These facts and myths about Demat accounts and how they work helped dispel a lot of misinformation. Consult a broker or financial advisor with any queries you may have before opening an account.