In order to trade in ETFs and stocks an online demat account is a must. A noteworthy feature is that it is not attract stamp duty. In the last few years the concept of demat account has evolved towards a paperless form of trading. Once upon a time the traders were being burdened with stock certificates, so for them the demat account has become necessary. In case if you do not have a demat account this has gone on to become a big barrier as far as investment in securities are concerned. No wonders to the fact that a lot of entities are moving towards a dematerialized type of trading. This is a form of account where you hold securities in electronic form rather than holding them in physical form.
Functions of depository
This works on the same module as that of a bank. Shares are held mainly of the investors in an electronic form. You just need to open an account with a Depository through a DP. They act as middlemen between the investor and the depository.
Any shares that you buy or sell are being reflected in the demat account. If you are holding any physical form of shares you can go on to convert it into electronic form and in your demat account this is being maintained as a form of electronic credit. Of late the mutual fund houses have gone on to facilitate purchase and sale of mutual funds which is based on the concept of exchange.
At recurring intervals of time the DP is going to provide you with periodical balances and statements of your profit and loss accounts. Even the transactions that you are undertaking within a period of time are explained. In addition they also provide you with various facilities in the form of nomination facility etc.
The process to open a demat account
It is fairly easy to open a demat account. You can undertake it with a bank or any financial institution. Banks are expected to provide you with attractive rates on a demat account in case if you have a savings account with them. But if you are planning to avail the services of an online stock broker, the onus would be to open a DP account or trading account with the same broker or even the institution.DP levy annual charges and the sum total of charges would depend across various industries.
During a DP system any ownership or transfer of securities takes place via an electronic forum. This is going to provide you with a lot of benefits. When you are dealing in physical securities there exists a possibility of theft, loss or fraud. Though this problem does not arise in the depository system. No form of transfer fee in the form of stamp duty exists when you are transferring the ownership into electronic form. In such an environment once the securities are credited on to your account, you become the legal owner of the securities. This is added to the company’s register.