Nowadays, stock trading is not only accessible to exclusive clubs but also for the average investor. It is possible because of the Demat account system introduced in 1996 to conduct trading activities online. As the stock trading shifted to online, it helped to minimize damages created by physical share loss, forgery, and theft.
In the current era, all traders and investors must open free Demat account to run the trading activities in the share market. Hence, in this article, we will understand the advantages and disadvantages of demat account.
Advantages of Demat Account
1. Fast and Secure Trading Process
One of the significant benefits of Demat accounts is that traders and investors can complete their transactions in a few days. But before the dematerialization, the trading used to take around 14 days. And let’s compare it with the current trading system, then an average trader. We can say that now investors have a fast and secure trading process.
2. Easy Transmission of Shares and Fund
Earlier, when the stockholder got deceased, the ownership of his holdings took a long time and much paperwork to the next of his kin. But nowadays, the Demat accounts have made this easy, and the next of kin can quickly transfer holdings in their account. It is possible because when the investor creates his Demat account, he can choose the nominee’s name or open a joint account with the name of the nominee. But if Demat accounts are not there, then the legal heirs have to struggle to claim such holdings.
3. More Secure Than The Traditional Trading Method
Now the trading methods in the stock market are more secure than the traditional trading method, which used to include paperwork. If the financial assets are in the physical form, they are more likely to be stolen or lost. Hence earlier, these were the common issues that a stock trader faced in the trading days. Also, it used to include much paperwork, which used to be time-consuming.
But with the Demat accounts and various tools, the investors can buy or sell the securities more securely.
4. It Has Solved The Issue of Odd-Lots
The investor needs to buy the stocks in odd-lots. Therefore the tiny traders used to hesitate in taking a deep dive into the Indian share market. But when the Demat account system took place, many small traders came. It happened because now they can trade with a single share and decide the number of shares by themselves. Thus, it is another of the best advantages of the Demat account, which exists these days.
5. A Central and Easy Point to Update Information
Updating information like adding the nominee’s name, changing address, and other information has become more accessible. All these things can be done using a Data account, a centralized place to update any information a trader needs to do. But if the Demat account is not there and trading is done manually. Most traders will not be able to update this information timely.
6. Simple to Manage Account and Portfolio
Another advantage of the Demat account is that a stock trader can easily manage his financial assets using the dashboard of the Demat account and tools. All the transactions are recorded automatically by digital form. And it helps in the reconciliation and management of the account. And before the dematerialization, the investor has to manage the records of transactions by themselves.
7. It is All One Trading Solution
With the help of the Demat account, you can invest in shares, whether these are equity or preference. Also, these are the accounts that also allow you to get some debt securities to secure your earning potential. So, if you have a Demat account, you are free to invest in a wide range of investment options available in the stock market.
8. Enhanced Monetization and Liquidity
The Demat account also encouraged shareholders and companies to monetize the assets and securities easily. Also, the shares and securities are more liquid as you can quickly sell in the stock market. Now the shareholders, investors, and traders have many investment options, and these are easily accessible because of Demat accounts.
Hence, demand accounts helped in increasing the liquidity of the shares and securities to monetize them easily.
Disadvantages of Demat Account
1. It Charges Various Fees
There are some disadvantages of using Demat accounts, and one of the significant disadvantages is cost. Demat account charges opening and operating charges from the balance of the account holder. It also charges several other charges, including transaction, custodian, manual, and many other charges. Hence sometimes, you can feel these charges cost more than the trading expenses.
2. Can Deal With Dishonest Brokers
Still, in the stock market, dishonest brokers exist, and they target new traders to take advantage. So, if you are choosing your stock trading broker, do a bit of research and check some reviews if possible. You need a broker who follows a high standard of corporate governance and ensures maximum transparency in transactions.
3. Should Have An Understanding of The Digital World
You do not need to be a technical expert to handle the Demat accounts. But still, it requires a sound understanding of digital transactions and critical information to know. If you haven’t used or are entirely new to using internet tools, you can face several challenges. However, most people are technically sound and know the know-how of digital transactions.
However, the investors need to depend on brokers to do trading. If they know some internet skills like searching about the best investment opportunities. They can save them from any fraudulent activities made by the broker.
So, in this article, we discussed the key advantages and disadvantages of demand accounts. And the advantages of Demat accounts are comparatively more than the disadvantages. Hence if you are willing to trade in the share market, you need to open your Demat account from the right broker. Those who can ensure high-level securities and transparency of your stock trading transactions.
Also, many banks provide free Demat account opening facilities. Also, there are several other applications available to make this process easier. I hope you have understood the advantages and disadvantages of opening a Demat account in the share market. Thus, if you think it is a helpful article for you and can help your friend, share it with those.