Dematerialised Account, popularly known as Demat Account is an account that allows investors to hold their shares in an electronic form. Stocks in Demat account remain in dematerialized form. Dematerialization is the process of converting physical shares into electronic format. During online trading, shares are bought and held in a demat account, thus facilitating easy trade for the users. A Demat Account holds all the investments an individual makes in shares, government securities, exchange traded funds, bonds and mutual funds in one place.
Demat account services are offered by the banks, both government and private. Earlier there used to a different demat account, trading account and savings account. However, since 2011, banks have come up with 3-in-1 accounts which provide all of these into one. These accounts are opened under the bank but with a different book in the name of securities. For example, SBI opens this in the books of SBI Cap Securities, Kotak Bank opens in the book of Kotak securities, ICICI bank open with ICICI Direct, HDFC with HDFC Securities, Axis Bank as Axis Direct etc. These are brokering firms and acts as a service broker. The services offered are trading for equity and derivatives, IPOs, mutual funds and insurance.
The flow of funds is as,
Savings Account Trading Account Buy securities Deposited in Demat Account
Having the account with one service provider helps in seamless movement of funds and securities and saves you from lot of hassle of transferring funds and securities and might result in loss of opportunity of purchase of sale.
As with any financial service, the fees and broking charges play an important role while selecting a broker. In addition to the opening fees and the annual maintenance fee, which the brokers some times waive off, the transaction charges are most critical. While choosing demat account service provider, it is better to look for these charges first and then decide which service provider to choose.