Finance

8 Myths & Importance of Demat Accounts in India

Importance of Demat Account

The Stock Market has always drawn attention from lots of people when it comes to making money from money/creating wealth. But, with this money minting treasure, there’s always a diversion route which either leads to the wealth distortion or any kind of fraudulent activities.

Recently, the same thing happened with a very renowned stock broking firm in India who have violated the regulation norms & took the wrongful advantages of people’s money/portfolio i.e. by selling their assets without any legal information & rights. This fraudulent activities has arises fear in the mind of investors who are immature or planning to enter in the market.

Read our Previous Article: 5 Points to Remember while Choosing a Stock Broker in India

To counter attack the fear and the myth which are still existing in the minds of people or who are not even investing in this gem. We have pointed out some 8 myths which will tell you why demat account plays a crucial part in creating wealth for the people and also act as a medium to their richness.

Let us understand & read in details: –

8 Myths of Demat Account

  1. Can you buy & sell shares from Demat Account?
  2. Demat account data is Sri with third party.
  3. My CA has refused to open a Demat Account.
  4. Mein share does not invest in the market, so I do not need Demat accounts
  5. In demat accounts my nivesh is not safe.
  6. It is not enough for me to have Demat accounts.
  7. It takes money to open and maintain demat accounts.
  8. My broker makes a lot of signatures while opening Dest accounts.attentio

1. Can you buy & sell shares in Demat Account?

No, you cannot buy or sell shares in Demat Account for that you need a Trading Account. Whenever the broker opens a Demat Account simultaneously, they open a Trading Account with it. Demat Account is like a Savings Accounts of your Financial Assets like Shares, Bonds, Mutual Funds and Trading Account is like your Current Account where buying & selling activities take place.

2. My Demat Account data will be shared with Third Party

As said, Demat Account is like a Savings Account in a Bank. Thus, if your bank shares your savings account details with any other third party then, they have to face legal action from the RBI (Reserve Bank of India). Similarly, Demat Accounts data are secured with your Broker & Depository under the SEBI Guidelines and Securities Contract Regulations Act (SCRA), 1956. And if their is any misuse of data or to your Financial Assets – then, SEBI will be there to safeguard your interest. Securities Exchange Board of India (SEBI) which is known as Watchdog of the Securities Market.

3. My CA has refused to open a Demat Account

Seriously, This is something most shocking to hear. But, we heard this most of the time. In sales field, it simply means that either the prospect/client is not interested in opening the account or their CA (Chartered Accountant) is not aware about the Demat Account & the activities of Stock Market. Investors in the market pays taxes to the government for every transaction & even for every earnings they made.

First & foremost thing, stock market is a platform where investors, traders, & other market players invest their money with the purpose of capital appreciation.

Trading & Investing in the Stock Market through a registered entity is a Legal Activity.

In simple terms, Stock Market is a place where company’s raises money for the purpose of either expanding their businesses or for fulfilling their other expenses or reducing debts. Here people trades with the expectation of making money. Thus, expectation doesn’t guarantee any return on investments.

So, next time whenever your CA says so, then it’s time for you to tell your CA to learn about the Stock Market.

Just imagine, if stock market doesn’t exist, then there wouldn’t be any Rakesh Jhunjhunwala, Radhakrishna Dhamani or not even Warren Buffet. It would be really hard to measure the performance or the viability of any company & its owner. Also, investing with small amount in any company will be a questionable issue. So, Educate yourself & to your CA about it. Rest, the choice of selection is solely on you.

But please don’t create rumors.

4. I don’t want to invest in Stock Market, so doesn’t need a Demat Account

As of now, Demat (De-Materializing) Account are not necessary/mandatory for investing in all the Financial Assets. But it is mandatory for those who are directly investing in stocks. Besides stcks, investors can have Bonds, T-Bills, Mutual Funds, & ETF in their Demat Accounts. So, if you are investing in any of these financial instruments, then it is suggestible to have Demat Account. With Demat Account – the risk of forgery, theft & other miss-happening will be eliminated as everything will be in a secured electronic/digital form.

5. In Demat accounts my Investments are not safe

As said, SEBI is a watchdog of the Securities Market. And Demat account plays a very crucial role in the stock market. Thus, all the rules & regulation are governed under the regulatory body of SEBI with the purpose of protecting the investors & other market participants from fraudulent activities.

Besides stringent norms by the regulatory body, it is always suggested to every investor to regularly update & check their personal details like Name, Email, Address, Phone Number & Mode of Holding with your Broker whenever their is any change. Also, the Depository Participant i.e. the DP where all the investors holding are in the demat form sends the Consolidated Account Statements on a Quarterly Basis, so you can also do keep a check on your account from it. And once the shares/financial assets are in your DP or in your Demat Account it won’t be possible for any broker/third party to take out anything without your consent & if someone did – then, SEBI is there to safeguard the victim.

Also Read: Top Performing Stock Brokerage Houses in India

6. It is difficult for me to manage one Demat Account

As said, demat account plays a very crucial role in wealth creation for any market participant. And the choice of opening a demat account or not is on a sole discretion basis.

No one can enforce anyone to open demat account. If any broker/agent is doing so, then you can complain about it directly to the exchange & the SEBI through their Investor Grievances Cell.

As far as the account management is consult, it just take a few minutes to check the status like in savings account. And if the purpose is to create wealth through securities market, then it is important to learn & manage your demat account.

7. It takes lots of money to open & maintain Demat account

Opening & Maintaing a Demat Account doesn’t cost much. It would cost you around Rs. 1000/- or even less or for free.

And as far as the maintenance of account is concerned it wouldn’t be cost more than Rs. 200/year as Annual Maintenance Charges (Charges may differ from broker to broker). But if you have holdings of Less than Rs. 50,000/- then, you’re account is BSDA account viz., the Basic Service Demat Account. 

In BSDA, investor gets all the benefits of Demat Account at minimal cost. BSDA Accounts are for those investors who are not regular in the market or invest very small amount in the securities market. Thus, to open the facility for all SEBI has said DP to offer BSDA serivces to such small investors.

8. My broker makes me to do lot of signatures while opening of Demat Account

Again repeating, Demat Account are the most secured form of electronic accounts which rules are robust. And for the purpose of safeguarding the interest of investors, it is required to for the Broker/DP to safeguard you & themselves under the purview of SEBI rules & regulations.

In India, there are some discount broker or even traditional brokers who are offering Online Demat Account services to the investors where they can just upload their digital signature and get rid off from signing the 32-40 pages of signatures.

Besides, before signing any document it is suggestible to read it once for the sake of own security purpose. And if any doubt arises then ask your broker for the same.

All documents are necessary except some. So, read all the documents carefully before signing it.

Further, also Read: Points to Remember while Choosing a Right Financial Planner/Advisor in India

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