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    Understanding a Demat Account

    The world of investment markets are now easily accessible to all people due to the emergence of the internet and twenty-first century technology that has revolutionized traditional stock trading and allowed it to be done automatically. Along with this emerged discount brokers, who provide access to the same infrastructure and allow trading at significantly lower rates than traditional brokers.
    Along with the various other services that discount brokers provide, one of the most essential is a free demat account. Demat accounts were first introduced to follow up the concept of dematerialized shares – both required structures in the new world of online trading. This introduction of online trading itself was made possible only through the steps taken to standardize all trading transactions, the increased use of internet and technology for all things and the establishment of the NSE.

    The need for demat accounts arose with the dematerialization of shares. What is meant by this is that all the previously physical share certificates that served as proof of ownership were turned into an electronic format. This allowed the shares to be easily accessible and maintained, no matter where you were situated. It also allowed for the trade of shares to be conducted over any online platform.

    The basic function of a demat account (short for dematerialized account) is to provide facilities to hold both shares and securities in an electronic form. This facilitates easy trading for users since online trading can happen through the buying or holding of these shares in a demat account. Through the demat account, it is possible to keep any and all investments made by the individual – whether in the form of government securities, shares, exchange traded funds, bonds or mutual funds – in a single place that is easily accessible and secured.

    Aims and objectives of a demat account

                The introduction of a demat account was meant to tackle various existing hurdles and make online trading easier and more accessible. Some of the aims of the account were as outlined below:

    • The Reduction of Paperwork
    All investments held in a demat account are in an electronic format. This means that the need for documentation and paperwork has been completely eliminated. The entire procedure becomes more convenient and less straining due to the reduction in transaction time that comes about as an effect of less paperwork.

    • Lowering of Costs
    There are generally a lot of hidden charges that are involved in physical securities due to transaction costs that include handling charges and stamp duty as well. Unlike these transactions where complete cost cannot be determined at the beginning, a demat account completely eliminates any additional cost and ensures that the entire transaction cost can be determined at the start.
    • Lower Risk
    Physical copies are generally prone to damage – they can get torn, misplaced or lost. Risks of fakes, and incomplete paperwork are also present. However, none of these risks are present when opening a demat account
    • Instantaneous Transactions
    Transactions in an electronic format take place instantly and the investor receives his credit much faster than he would have in the case of a physical delivery.

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