Make the Best Investment Decision with a Demat Account

Demat account is that type of account where shares are held directly by the investor with the depository. It is a good option for those people who want to reduce their credit risk. They can redeem them whenever they want without taking permission from the bank or broker.

1) Zero Credit Risk

Demat account holders have zero credit risk because whatever they own in Demat accounts is securely stored on their behalf by depositories like SBI, NSDL etc.. This security is traded electronically on stock exchanges. Hence, there is no possibility of certificates theft and neither need to store physical share certificates at home. Moreover, if one ever lose their share certificate, it will be replaced free of cost by depositories within 48 hours. 

2) 24 X 7 Trading

Demat account holders can trade in their securities all the time, day or night. It is not that trading in shares in demat accounts is allowed only during market hours like regular bank accounts. The brokers just need to update the depository at the end of each trading session to show the latest position of investors. Thus, open trades will be cleared automatically for a new trading session and the remaining positions will be shown on the next working day by banks or depository participants. Also, there is no restriction on trading hours for Demat account holders. Unlike mutual funds, they have complete control over their investments, where exit load is charged whenever one sells their units between certain time periods.

3) No Penalty for Holding Shares

Another benefit of Demat accounts is that there is no penalty or exit load on holding shares. One can hold their shares for any number of days; the mutual fund companies do not restrict them to hold their units for a certain minimum period. The only thing here one should keep in mind is while transferring shares, make sure to use ‘Delivery vs Payment (DvP) mechanism so that MFs does not generate an invoice against their preferential transfer. For this, just place ‘DvP’ instruction with the depository participants at the time of transfer request generation.

4) Exemptions from Wealth Tax and Long-Term Capital Gains Tax

Since securities kept in the account do not come under annual total taxable income, the equity-oriented mutual funds are exempt from wealth tax. Similarly, EOMFs are exempted from LTCG tax up to Rs 1 lakh of capital gains for non-corporate investors. Also, if one has invested in EOMF through his Demat account, he can benefit from this exemption up to Rs 1 lakh on LTCG arising out of transfer of units in Demat accounts without payment of STT.

5) Investing via Systematic Investment Plan

Investors can regularly invest in EOMFs through a systematic investment plan, which means they need not pay a lump sum amount every month to buy units in mutual funds. Instead, they can invest any amount, however small it is, once or twice a month via SIP mechanism.

6) Easy Transfer of Securities

One can transfer their securities from one demat account to another in just a couple of minutes. This is possible because all the information related to securities is stored electronically on the depository’s computer servers. Hence, it will not take them time to generate a transfer request. Also, there are no legal formalities like stamping documents and signatures as it happens in the case of physical share certificates.

These were some tremendous advantages of demat account. To open a demat account easily, contact 5paisa.