Demat Account Advantages and Disadvantages– Are you thinking of opening a trading account with a Stock Market Broker? The first step is always to create your Demat account. What is a demat acocunt and is it safe? What are the advantages and problems of having a Demat account?
A Demat account is a type of account used to hold shares and securities in digital format. It is known as Dematerialised account.
The primary purpose of opening a Demat account is to hold shares that have been converted from physical to digital stocks. It makes online trading easier for users.
In India, NSDL and CDSL depositories provide free Demat account Services, and intermediaries, depository participants, or stockbrokers offer these services.
So what are the advantages of opening a Demat account?
5 Advantages of Demat Account
Here are some perks of having a Demat Account:
1. Decreased risk of losing documents
The odds of losing documents are very high when bonds and shares are in physical format.
It is highly likely that bonds can get lost if the user experiences any natural disaster that compels him to change places.
Therefore the shares are stored in an online electronic format which is a far safer and more secure option as it helps the user to have a permanent digital record of the share.
2. Helps you to avoid forgery
If the bonds and shares are in a physical format, the risk and fraud are very high.
And if the Demat account is paperless and the user has the credentials, you can access your data.
In this way, chances of forgery and duplication are avoided.
3. Loan Facility
Users can apply for loans through the securities in the Demat account.
The securities can act as collateral for the loan.
4. Cost-Effective
If the user opens an online Demat account, the extraneous charges of stamp duty and other handling charges are reduced. The only amount one has to pay is brokerage.
Discount brokers can help you save even more.
5. Time Saver
Buying and selling shares can be done really quickly with the help of a Demat account.
Liquidity of shares is easier as online transactions are processed at a faster rate as the shares are stored in digital form.
5 Disadvantages Of Demat Account
While the advantages all seem great, what are some of the disadvantages?
1. Annual Charges
Every user must consider the annual maintenance fees that most bank charge.
No matter the number of securities the user holds, one must pay a yearly maintenance fee.
This charge differs from bank to bank, while some banks and finance companies offer a free Demat account for life.
2. Technology Savvy
In the contemporary world, trading has become entirely electronic. The users need to have basic knowledge of computers to manage their portfolios.
People with no computer knowledge find it challenging to operate a Demat account. Hence, people miss out on opportunities to trade and make profits.
3. Share Trading at High Frequencies
Trading has become faster and simple, but this leads to short-term trading.
As a result, users miss out on profitable long-term investment opportunities. The frequency of trading can lead to losses than richer long-term gains.
4. Stockbroker Supervision
The user needs to constantly supervise the stockbroker’s actions. The user has to keep a constant tab to check for incorrect transactions.
This is one of the most significant disadvantages of holding a Demat account.
5. Dishonest Broker
It can be challenging to find an honest broker, as many brokers indulge in proprietary trading, i.e., they become the counterparty to a client’s trade.
FAQs
Q. Why should one open a Demat Account?
Answer: Because It’s a prerequisite for trading in the Stock market.
Q. What are the documents required to open the Demat Account?
Answer: Proof of income like Salary Slip, photocopy of income tax return, and certificate of net worth.
Q. What are the details of the Demat Account?
Answer: Demat account number, DP ID is given depository participant, Power of Attorney (POA) number.
Q. What are the facilities available after opening a Demat account?
Answer: Share transfer, dematerialization, and rematerialization, and furthermore, the user can convert physical shares into digital form and vice versa.
The advantages of opening a Demat account by far outweigh the disadvantages of opening a Demat account. Opening a Demat account is mandatory for trading in the stock market. With some research, users can find honest and reliable brokers to open a Demat account in India. Check out @OnlineTradingInstitute.in for other finance related articles.