Last Updated on April 18, 2022 by Hub Blogging
A Demat account is one of the tools required to operate/invest in the stock markets. One can open demat account by reaching out to any authorized online stock broking platform. The shares owned by a person are stored in electronic form in a Demat account.
A Demat account can also apply to certain other investments, such as mutual funds and bonds. Across a specific time frame, the brokerage provides the investor with holdings statements. It allows the investor to keep track of the financial investments from one source.
Here are five points to consider before investing in a Demat account:-
In order to make transactions in terms of buying and/or selling shares, one crucial aspect is choosing a broker. A brokerage firm can either be a discount broker or a complete-services broker.
One major difference between the two types is the range of services/products offered. In the case of a discount broker, trading in stocks and futures & option is the key selling point; in the case of a full-service broker, on top of these services, it also allows the investor an option to transact in products pertaining to mutual funds, personal finance products and initial public offerings(IPOs).
Access Type and a software variant
One of the important factors before working with a demat account is the trading software that the broker provides and the extent to which the software is user-friendly. In cases where the software is needlessly complicated and makes it difficult to trade, it is best to go with simpler software, which makes investing hassle-free.
User support/Online Support/Investor support
Since technology is involved in making financial transactions, it may go wrong sometimes. In these cases, proper support is required from the team available from the technical side/support side, who can interact with the investor and resolve any issues with a quick turnaround time.
Demat charges involved
There are multiple costs associated with the maintenance of a demat account. Some of them are account opening, Annual maintenance charge(AMC), charges paid to NSDL or CDSL on buying/selling shares, and penalty charges on DIS rejection. One needs to look at all these to get a bird’s eye view of the costs involved in operating a demat account.
Whether the banking/brokerage and custody is seamless or not?
These activities depend on whether the broker is a bank or not. It is not too significant. If the brokerage and custody of the account happen seamlessly and/or if the funds are loaded via NEFT/UPI/RTGS or any other authorised payment gateways, it works. One should remember that many brokers take a nominal charge to avail the services of a payment gateway, so it is best to use the NEFT/RTGS/UPI method to transfer funds as it would be free of any nominal charges.
In addition to the five points above, there are additional things one should consider. One of those things is checking if the demat and trading account are with the same broker. One should also check if the broker has a DP licence. An investor should also submit the DIS(debit instruction slip) on time to the broker on selling shares. Failure to do so will result in bad delivery and lead to losses.
In cases where the broker and DP are the same, this process becomes simpler. An investor can opt for an online demat option and give the broker the POA(Power of Attorney)to debit the demat account every time a sale happens. The demat account is credited in the event of a purchase. This way, since the trading and demat accounts are at the same place, it is hassle-free.