In 1996, SEBI (financial market regulator) regulated the process of holding securities in a valid form. Earlier the share market worked haphazardly and it became a necessity to regulate its working.
The financial market started forming a hierarchy:
- BANK: Where the money has to be kept.
- STOCK TRADING ACCOUNT: where the selling and buying of securities take place and this acts as the online platform for traders to meet.
- DEMAT ACCOUNT: where the securities are to be held after buying and selling from traders.
When, as an investor, you buy the share of any company, you use the stock trading account to do so. The money is debited from your bank account and the shares are reflected in your Demat account where they are also credited.
Similarly, when you sell your shares through your trading accounts, the same gets debited from your Demat account and are then sold in the market. The proceeds of the sale are credited back to your account. Thus to trade in the stock markets, it is mandatory to have both stock trading account and an online Demat account.
The online Demat accounts also known as dematerialized accounts have paved way for holding the shares online.
The stock trading account is a link between the bank and the Demat accounts played a vital role in selling and buying of the goods and services.
The part where the opening of the accounts is concerned is easy with the help of depository participants or brokers, they are the people who have been certified by SEBI for opening the Demat accounts for shareholders.
The important reasons for which it is necessary to open an Online Free Demat Account for investing in shares market are:
- Sorting: the hustle-bustle of the share market needs a proper hierarchy and arrangement for working. Opening online Demat accounts does the work easily. With advancement, it has become more convenient for people to open free Demat accounts.
- Holding securities: once the securities have been traded it needs an account for holding them and a platform where one can trust that their shares are safe. Online Demat accounts do the work.
- Safety: once the security has been taken in it becomes safe as it is in virtual form and one can be assured that the shares are safe and there are lesser chances of loss.
- Avoiding fraud: this method of saving the details and documents helps in keeping records of what are the profits and losses and also helps SEBI to maintain a record of how the share market is being regulated.
- Improved virtual transactions: with the advancement in technology people have started working online which saves their time so opening free Demat accounts helps people to keep a regular track of how their shares are working.
Other Products which can be utilized with your existing DEMAT accounts are:
- E-insurance has started: Demat your insurance policies,
they can keep all their electronic insurance policies safe and also maintain a record for the same.
- E-mutual funds have started: Buy mutual funds through your broker and keep in Demat accounts paperless and free from documentation. Through CAS report you can manage your investment at once single location
- E-Gold : Now you can invest in gold in e-form and keep it safely in demat form. Be free from physical storage and chances of getting it stolen
Advantages in keeping e-insurance, shares and e-mutual funds.
There are various NBFC where you can ask for loan against share/bonds/insurance if they are in Demat format and get money in your hands.