A Demat Account is a short-term dematerialization account and is a prerequisite for a stock investment and can greatly ease your investment journey if you are planning to invest beyond mutual funds.
While a Demat account is only a storage account to keep your stocks, a trading account is needed to buy or sell orders in the market because it is in the trading account, where you keep the account balance or money. You buy shares, for instance, using your trading account.
Many experts advise against opening a Demat account due to brokerage charges and due to the annual maintenance fees involved. This argument holds if you are planning to invest in mutual funds only, because MF Central or MF Utility can be used to get a consolidated view of mutual fund holdings and it is not necessary to open a Demat account. But if you are planning to diversify investments outside of mutual funds, then a Demat account becomes necessary. Here's why.
Benefits of Demat Accounts
Must For Stock Investments: Opening a Demat account is a prerequisite for trading or investing in stocks. It is not possible to buy shares without a Demat account.
No Need For Multiple KYC: Under SEBI's unified KYC regime, once a person is KYC verified, they can invest in different mutual funds or different stocks without resubmitting documents. If customers don't have a Demat account, they will be asked to submit the same set of documents (namely, self-attested copies of PAN card and address proof) multiple times.
Centralised View: A person's entire portfolio of financial assets, including stocks, ETFs, bonds, and mutual funds, may be kept in one convenient location, in a Demat account. There it is very easy to keep a check on it. The consolidated view of investments helps you to make better investment decisions or use portfolio management techniques.
Tools: Many companies offering Demat accounts provide real-time market data and technical analysis tools through their broker mobile applications, aiding in strategy formulation for better returns and risk management.
Charges Involved In Operating A Demat Account
Annual maintenance fees to operate a Demat account range typically from Rs 200 to Rs 750 among different brokers, with some offering waivers for the first year. Account opening charges also vary from zero to Rs 1,000. Transaction charges for equity delivery are mostly nil, while sell orders incur a percentage fee of around 0.03 per cent to 0.05 per cent or a fixed amount mostly Rs 20.
