To trade in the Indian stock market, it is advised to open Demat account since it has certain benefits. Dematerialized account as well as as name suggests demat account refers to an account through which various products such as shares, bonds, and mutual fund as well as so on can be held in a dematerialized or electronic form. Many people are owning stocks in India now and if you are one among such persons you find it convenient besides many other things to have a demate trading account. Here are the top 5 benefits of opening a demat trading account for stock market investing.
- Easy Trading of Stocks
A Demat account thus enables it to be very easy and hassle-free for one to engage in the trading of the stocks. Without an account, one is unable to buy or sell shares in the stock exchange market. Analogously to a trading account, in Demat account you manage your investments through a trading portal or application. This cuts short the time that would be used in writing exercises or physically visiting brokers to affect business.
Furthermore, a Demat account is beneficial as it helps to consolidate all your securities in one place rather than having to deal with a multiple physical certificates. You can refer to the portfolio at any time to check on number of securities purchased, sold or remaining. The electronic holding also eradicates other risks that would be associated with forgery, theft or damage on physical certificates. Therefore, the simplest advantage that is offered by a Demat account is the convenience with which one can trade in shares.
Trading online in India is also easy as you can open a Demat account with any of the large banking institutions or with reputed stock brokers. It also allows you to complete transactions in a safe manner based on your investment strategies. All these aspects make equity investing efficient where you have complete control over your portfolio to make timely decisions with a Demat Account.
- Participation in IPOs
One of the major advantages of having a Demat account is that they enable you to invest in shares of companies during their Initial Public Offerings or IPOs. IPO applications also entail the use of a Demat account since the newly offered shares after floating are reflected in the electronic account. Thus, to invest in primary market offerings, you need to have a Demat account.
IPOs can also be a chance to purchase shares of a company at a very affordable price compared to the time when the company’s securities are listed. So many IPOs offer great listing gains as their prices do afford high returns when they are listed providing investors with high gains. Having a Demat account therefore makes you eligible to receive share allotments in case you apply for an IPO. Depending on your financial status and your ability to take risks, you can subscribe to the best IPOs and make profits from listing gains.
The ability to get into primary market offerings is one of the most useful benefits that should encourage an investor to open a Demat account. It opens up more ways through which you can make money in the stock markets for you.
- Systematic Investment Planning
It also provides systematic investing facilities in Demat accounts. The Systematic Investment Plan or SIP enables you to follow a proper strategy for investing in equities for wealth generation. This means that a fixed amount can be invested at fixed intervals, for example, on a monthly or quarterly basis to create a portfolio.
SIP inculcates a discipline of investing on a set timetable while at the same time managing the average cost of the stocks. In other words, during periods of low stock volatility, the same amount of money can purchase more units or shares, which must lower average costs. This method is commonly referred to as rupee cost averaging and it could yield higher returns over long investment horizons of 5-10 years. SIPs also eliminate the risk of market timing thus making it easier to manage risks.
Most online broker services have convenient ways of getting started with SIPs with the help of a Demat account. It is possible to make monthly contributions from as little as $10. It is very convenient for the investor since the automated deductions are made directly from the linked bank account. SIP means investing a fixed amount of money in a mutual fund every month, which in the long run, can build a large corpus and offer returns higher than the inflation rate.
- Reduced Brokerage & Holding Charges
Opening a Demat account also means lower brokerage and holding charges for the investor. Demat account for online share trading involves less brokerage charges than the full-service trading account. Lower brokerage means less cost is incurred in transactions through brokers and this is beneficial to the investors.
Also, Demat accounts cut down the expenses on annual account maintenance charges besides eliminating costs of holding physical securities in the form of certificates. Digitalization of securities is relatively cheap and reduces exposure to risks such as deterioration, loss or mimicry among others.
Some benefits include; cheaper brokerage and account maintenance since investors can open a single Demat account for all their investments. The advantages of lower costs are to enhance the experience of investment as a whole and increase the net benefit.
- Seamless Tax-Planning
The other advantage of Demat accounts is convenience in income tax planning and filing of tax returns. Second, by trading through a Demat account, you have all your investment in one place, which simplifies tracking at the time of filing income tax returns.
In a fiscal one is allowed to claim up to Rs 1.5 lakh per year as tax deductions under Section 80 C for multiple products including ELSS mutual funds, EPF, PPF etc. Having all these in Demat form help in easy tracking of investments, capital gains and dividends for correct tax filings. It is also possible to easily obtain annual consolidated account statements of the Demat account for all the equities, mutual funds and other investments.
This eases your documentation headache & time used when filing returns and ensuring compliance was accurate. Further, it also makes it easier to link the Demat account with PAN which is inevitable for investing and dealing in securities. This way you can effectively look after all document requirements for tax through your Demat account.
Conclusion
There are several benefits for Indian stock market investors who demat account and trading account. This electronic account lowers brokerage fees, streamlines tax planning, makes it easier to participate in initial public offerings (IPOs), makes stock trading simpler, and allows for systematic investment planning. Demat accounts provide investors ease, security, and efficiency in managing their portfolios in the current digital financial environment by electronically holding assets.
