A demat account helps you to invest and trade in multiple securities. It also allows you to invest in mutual funds, currencies, commodities, and other market segments. When the demat account was introduced in the Indian stock market, it eliminated the risks of cost, theft, and damage that physical share certificates were exposed to. It also reduced the time and cost required to invest in shares. Nowadays, you can avail of these things and features with a demat account:
Option of loan
Banks offer loans on your holdings in a demat account if you pledge them as collateral. The loan amount can be used to manage a financial crisis or emergency. While you take a loan against the securities that you hold in your demat account, you can continue getting the dividends, bonus, and other benefits offered by your stocks.
Margin trading
The stocks lying in your demat account can also be used as a margin to indulge in market trading. This feature is called margin trade funding and is offered by many stockbrokers these days. You will have to pay interest for the borrowed margin but it also helps you to earn huge profits from trading in the market.
Tax-free earnings
The dividend earned through stocks is exempted from income tax provided that the dividend amount is not greater than Rs. 10,00,000. As per section 10 (35) of the Income Tax Act, the dividend you earn through equity mutual funds and debts are exempt from taxes.
Dematerialisation
A demat account allows you to dematerialise the physical shares that you have. After dematerialisation, the physical shares are converted into digital format and held in your demat account. If you want to convert the electronic shares into physical share certificates for any reason, it can be done through a process called rematerialisation. You will need a demat account to complete both dematerialisation and rematerialisation of shares.
Trading online
A demat account allows you to trade online by providing a simple process for buying and selling stocks. You can also trade in other market segments in Intraday, debentures, F&O, etc. by using an online trading platform. As you purchase or sell shares online, the time required for the transaction is minimum. Also, you can choose whether to hold the securities for a short or long time as per your trading requirements.
A trading platform provides all the information about a company’s stocks. It helps you to make a well-informed decision by checking the annual return rate, history, and other factors. If any event is likely to take place shortly, the demat account will inform you about it as well. For example, if a company is about to pay an interim dividend or bonus share, the demat account will inform you in advance. Similarly, if a new IPO (Initial Public Offering) is to be launched in the stock market, the demat account will give you details regarding its launch rate, price per stock, minimum order to be placed for the bid, etc.
A detailed analysis of your investment profile and real-time trend analysis can be obtained via a demat account. You can also create a watchlist containing the stocks that you are planning to invest in. Setting stop-loss and buy triggers also help you to make the most of the current market situation. All these things help you to maximise your profits through trading. However, you should open a demat account only after checking the brokerage services, brokerage rates, AMC, and other costs offered by different brokerage firms.
