Does a demat account sound interesting to you but at the same time you find it difficult to understand? Well, don’t worry, and just keep reading as we talk about how demat account works in this article.
A demat account works just like your bank savings account where your money is kept. In a Demat account, you store your shares with a Depository Participant (DP), also known as a stockbroker registered with either NSDL or CDSL.
If your stockbroker is registered with NSDL then, it deals with security trading at BSE and if it is registered with CDSL, then it operates with security trading at NSE.
So, in general, two entities are also linked with a demat account, namely, a trading account and a bank account.
When you buy your desired shares, the money gets transferred from your bank account to your trading account. After this, it is the responsibility of the stockbroker to transfer this to the seller’s trading account. Subsequently, the shares get credited in the demat account of the buyer.
The stockbroker debits the shares from your demat account when you sell your shares while money gets credited to your trading account. You can further transfer this money from your trading account to your bank account.
When the entire world is going digital, why should you lag behind and keep all your shares in a paper format in a big suitcase?
Demat account dematerializes your physical form of shares into an electronic, digital and paperless format that is easy and safe to store as well as transfer.
Also, you can always access those shares on the tip of your fingerprint. How cool is that?
It also makes the whole investing and trading experience hassle-free as the whole process of transferring shares along with the funds is completed online which saves both your time and energy.
We hope we answered how the demat account works. Feel free to ask more such questions in the comments.
