SEBI (The Securities and Exchange Board of India) launched the Demat account in 1996 to trade and invest efficiently. Any investor can easily use it by registering himself as an investment broker or a sub-broker. However, a lack of understanding of how to use a Demat account, or best practices for using a Demat account, becomes an issue and doesn’t let us take leverage of the Demat account fully.
Opening a Demat account has several benefits like e-verify your returns, loan against Demat shares, yields and good returns compared to physical assets like gold, reduction in errors, fast and smooth settlements, better liquidity and monetization, simplified management and accounting, One-stop storage for assets like government securities, bonds, ETFs, mutual funds, equity shares, etc., investors don’t need to undergo paperwork, it lowers transaction settlement time, cost-saving and safely holds all investments in one place. The only things required to open a Demat account are an active internet connection and transaction password, which the user will get after opening a Demat account successfully.
1> The first step in opening a Demat account requires a selection of depository participants who will act as agents to the depository. This will be trailed by filling out the Opening form and submission of identity proof, address proof, PAN card, and a passport size photograph with a detailed description of all the acceptable documents similar to other account opening procedures. When the investors consent to the particulars of the understanding and the charges, an in-person confirmation is started. After successful processing of the application, post-verification, a client ID or an account number is provided which an investor can use to open his or her Demat account online. An investor can then utilize it to trade, buy and sell shares, stocks, and derivatives, and use it as a storehouse for the stock portfolio.
2> Now, besides being a depository participant, an investor also requires a trading account and a stockbroker to carry out the buy and sell of shares. A trading account reflects the history of purchases and sales. Usually, it takes T+2 days to show credit and debit transactions of shares in a Demat account, post-execution of trade, and later confirmation from the exchange. It is the responsibility of the broker to convey the shares to the Demat account of the investor after the amount of purchase is paid before the pay-in day.
The Best Ways to Use a Demat account:-
1> Gold – In November 2015, the Indian government launched the Sovereign Gold Bond (SGB) as part of the Gold Monetisation Scheme to provide investors best alternative and to rid of hassles by carrying physical gold everywhere with them. The market has seen a significant drop in demand for physical gold as well. By purchasing Sovereign Gold Bonds issued by the Indian government, investors can hold gold in a Demat account. You can buy these bonds either periodically issued by the government or you could buy them via a secondary transaction on the SMC Global App.
2> Physical Share Certificates – If you carry physical share certificates for companies, you can take profit from the benefits of a Demat account by converting them to demat form.
3> Mutual Funds – RTAs (Registrars and Transfer Agents) have traditionally been used to store MF units in a physical form. Nowadays, more than 80% to 90% of units are stored in physical form, preventing investors from making use of the benefits of a Demat account. SMC Global Securities Limited is one of the rare platforms that allows investors to own their units in a Demat account. You have the option of choosing between owning mutual funds in both forms. If you want to convert your existing physical holdings to a dematerialized form, you’ll need to fill out a dematerialization form.
4> Loan Against Demat Shares- The loan you take out against your Demat shares has several elements that set it apart from other types of loans. Here are a few of the most crucial features to be aware of:
- You can use your Demat shares as collateral for a loan of up to Rs 20 lakhs.
- Loans against Demat shares are frequently less expensive than personal loans, with interest rates ranging from 12 to 18 percent per year.
- Guarantors are not required for loans secured by Demat shares. Furthermore, they usually do not impose any prepayment penalties.
- Every week, the value of the pledged shares is reviewed.
5> E- Verify Your ITR – You can use the government’s e-filing website or an authorized e-filing gateway to submit your ITR. You can, however, e-verify your ITR using your Demat account. You must first pre-validate your Demat account to do so. Below are the 7 steps to e-verify your ITR.
How To E-Verify My Return Using Demat Account?
7 Steps to E-verify the ITR using Demat Account:-
Step 1: Go to the income tax e-filing website: https://www.incometax.gov.in/iec/foportal. Please enter your username and password to access your account. If you do not have an account, you must first create one.
Step 2: After Sign In, click on the “e-file” link present at the navigation bar, then press the “e-verify return” link followed by “File Income Tax Return”.
Step 3: E-verify return screen will appear. Select the return you need to e-verify. You can also pick the return by entering the acknowledgment number.
Step 4: ‘Select the method of verifying the return’ is the next step. After that, you must choose one of the options from the list. Choose the ‘Through Demat Account’ option.
Step 5: Once you select the option and proceed, EVC will be generated and sent to your phone number and email address associated with your pre-validated and EVC-enabled Demat account. (Must ensure that your Demat account is pre-validated and EVC-enabled).
Step 6: In the EVC text box field, type the EVC you received on your phone number and email address associated with your Demat account, and then click e-Verify.
Step 7: A success message page will appear after pre-validation, accompanied by a Transaction ID and EVC. Please keep the Transaction ID and EVC handy for future reference. Once done, the user will receive a confirmation message on his registered mobile and mail.
You’ll need a Demat account if you’re interested in trading. A Demat account is required to trade in the stock market. All shares are now held in dematerialized form, which will be reflected in your Demat account. Furthermore, buying and selling stocks in tangible form is complicated. The number of agents dealing in physical shares and the number of buyers willing to purchase physical shares is also significantly less compared to individuals transacting in dematerialized securities.
Whereas for commodities, exchange-traded funds, currency, or derivatives demat account is not mandatory. This is because certain sort of trades do not require delivery and are cash-settled.
Thank you for explaining how we can use a demat account in such simple terms. A demat account is mandatory for the investors and traders to participate in share market trading. Apart from this you have also described how one can verify his income tax return with the help of a Demat account. Many people will benefit from this informative piece of work.