Online trading platforms and digital account processes have provided greater accessibility for people wanting to invest in the share market. A demat account allows an investor to electronically hold, purchase, and sell their securities rather than deal with physical share certificates.
Understanding how a demat account works will allow both beginners and experienced investors greater confidence in using digital investment platforms. This article explains, step by step, how a Demat Account functions, from purchasing shares to selling them online.
What is a Demat Account?
A Demat Account (short for “dematerialised account”) is used to store financial securities such as shares, bonds, ETFs, and mutual fund units in electronic form. In India, demat accounts are regulated by SEBI and maintained through depositories like NSDL and CDSL, with banks and brokerages acting as depository participants (DPs).
A demat account enables faster and safer transaction operations because it removes the need for physical share certificates, which also simplifies tracking procedures.
Opening a Demat Account
An individual needs to create a demat Account along with a trading account before starting their investment journey. The Demat Account holds securities, while the trading account is used to place buy or sell orders.
Generally, the process includes:
- Submitting KYC documents (PAN, Aadhaar, and address proof)
- Completing identity verification (online or offline)
- Linking a bank account for fund transfers
After the system grants approval, the investor can use online platforms and mobile applications to access their account.
How Buying Shares Works Online
A Demat Account enables its users to acquire shares through a well-defined process that follows a clear operational process.
Placing a Buy Order
First, the investor starts by establishing a buy order through the trading platform after selecting their desired stock on the exchange. Then, proceed to specify the quantity before executing the order at their selected buying price.
Order Execution
The trade occurs when the order price matches the price that a seller has set on either the BSE or NSE.
Settlement and Credit of Shares
On the settlement day (currently T+1 in India), shares are credited electronically to the investor’s demat Account, while funds are debited from the linked bank account.
Holding and Tracking of Investments
Investors who receive their share credits can keep their shares in the demat account until they choose to sell them. Investors have the ability to:
- Keep track of their current holdings at all times
- Examine their complete record of transactions
- Observe corporate actions, which include dividend payments, bonus distributions, and stock split events
All information is updated automatically, which enables users to track their portfolio in a straightforward manner.
How Selling Shares Works
The process of selling stocks online is easy and reliable. The steps are as follows:
Placing a sell order: First, the investor identifies the number of stocks they want to sell and submits a sell order through their trading platform.
Debit of shares: Next, after execution of the order, the stocks are debited from the investor’s demat (short for dematerialized stock) account.
Credit of funds: Finally, on the settlement date of the trade, the proceeds from sales will be credited to the linked bank account after applicable fees and taxes.
The overall flow of transactions is digital, and therefore, both efficient and has less settlement risk.
Role of depositories and brokers
The role of the depository and broker is to manage the records of ownership and provide a connection with the stock market. The depository is responsible for maintaining ownership records; the broker enables you to buy and sell shares of public companies on the stock exchange through a registered broker.
A depository participant acts as a middleman between the depository and the investor, providing accurate and reliable recordkeeping and also providing a safe place for the investor to manage their securities.
Conclusion
Overall, a Demat Account is a foundational tool for anyone looking to invest confidently in today’s digital investing environment. It offers a simplified way to buy, keep securely, sell online, and provide transparency while offering regulatory safety for investors.
However, investors should still pair this convenience with a clear understanding of market risks, charges, and settlement processes. By knowing how transactions work and tracking their holdings regularly, individuals can participate in the share market more thoughtfully and make decisions that align with their long-term financial goals.
FAQs
1. Is a Demat account mandatory for investing in shares?
Yes, a demat account is mandatory to buy, sell, and hold listed shares and most securities in electronic form in India.
2. Can I have more than one Demat account?
An individual can open multiple demat accounts, but each account needs to be connected with a specific trading account while maintaining compliance with the established regulations.
3. How long does it take for shares to reflect in a Demat account after buying?
Shares are usually credited on the settlement day, which occurs one business day after trade execution (T+1) according to current practices.
