Aims and Objectives of Demat Account

Around 30 years back, demat account was introduced in India with certain aims and objectives. Today, demat account has become as common as having a savings bank account. It is mandatory for an individual to have demat account if he is interested in benefiting from the investing opportunity in the stock market.

Aims and Objectives of Demat Account

Main aim of a best demat account  in India is to safeguard the shares of the investors and to enable the trading of shares and their derivative segments in the stock market.

To facilitate this, each and every activity related to demat account are regulated by Securities Exchange Board of India (SEBI) through stock brokers. The responsibility of maintaining the operations are handled by depositories like NSDL and CDSL.

But is demat account required for trading in all segments? Is there any segment in which a trader can participate without having a demat account?

Need forDemat Account in Stock Market

Demat Account is shortened form of De-materialised account which enables holding the shares of the companies in electronic form.

Before 1991 all the shares were in physical format of paper certificates. This format had many issues and challenges.

Many cases of theft and loosing of shares due to natural calamities like flood and fire were reported. Because of this in 1996, Indian government decided to dematerialise all the certificates held in paper format to electronic format.

Is Demat Account is required for IPO?

IPO helps the investors to put his first leg into stock market journey and IPO market is called primary market.

If you apply for an IPO, the allotment amount gets debited from your bank account and the shares are allotted to you. To receive the allotted shares, demat account is necessary.

So, to apply for an IPO, demat account is mandatory.

Is Demat Account is required to Invest in Mutual Funds?

One can invest in Mutual Funds by directly visiting the Asset Management Companies or AMCs Websites. To invest in Mutual funds, demat account is not mandatory.

However, one can invest in mutual funds through demat account which will help to track all the investment under one umbrella.

Is Demat Account is required to Carry out Day Trading?

Intraday trading or day trading is a type of trading in which one buys and sells the shares on same day with the intention of making profit.

Ideally speaking, demat account is not required for day trading as the individual is not taking the delivery of the shares. Trading can be carried out with just trading account.

But most of the stock brokers insist to open the demat account to carry out day trading to avoid penalty of auction.

Also, most brokers provide 2 in 1 account at no extra cost. One will also get access to some of India’s top share trading apps by opening demat account with these brokers. Some of well-known brokers are Zerodha, Upstox and Angel One.

Conclusion

The benefits provided by demat account are manifold. It helps in smooth process of investment and transparency. Many frauds and manipulations are eliminated.

In fact, the concept of demat came to forefront after the biggest stock market scam of India - Harshad Mehta scam. After the demat is introduced, number of cases of frauds have come down drastically and we can say that aim and objectives of demat account is achieved.

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