Demat account has made stock trading and investing a simple task. Demat account holds shares and securities into electronic form and uses the concept of internet banking to carry out the process of dematerialisation.
Demat account has numerous advantages but just like everything has its pros and cons, there are a few disadvantages of demat account too. However, these advantages and disadvantages vary depending upon the investor. In this article, we will walk you through the pros and cons of the demat account.
Let us first learn about the benefits of demat account.
Benefits Of Demat Account
- With demat account, you can be assured that your shares and securities will be held safely. There is no risk of losing the share certificate due to theft, fire or any other calamities. All the risks which were there before the introduction of demat account no more exist. Now, it is the responsibility of the depository participant to safeguard and secure your holdings in the demat account.
- In order to transfer shares from one account to another, you just need to contact your broker and provide him the necessary details. Demat account has made share transfer process simpler and quicker.
- There is no problem of odd lots in the demat account. When the shares were issued and settled in physical form they could be transacted in a fixed lot size. But with the introduction of the demat account, investor can transact any quantity of shares.
- The demat account allows you to avail all the corporate benefits like refunds, interests, dividends, etc. and they are automatically updated in the account. In addition, demat account also adjusts the corporate actions like bonus shares, right shares, stock splits, etc.
- Change of the address can be easily updated by informing the depository participant. With this, there is no further need to inform the companies about the new address.
- Apart from your investment in shares, demat account can also hold your investments in bonds, government securities, exchange-traded funds and mutual funds.
- Demat account reduces the cost of transaction because no stamp duty is required on the transfer of shares.
The above mentioned are a few of the benefits of a demat account. Let us now see some of the cons of a demat account.
Cons of Demat Account
In general, there are not many disadvantages of a demat account. Most of the disadvantages can be overcome with awareness and carefulness. Some of the disadvantages are as follows;
- Demat account is open to internet frauds. However, this flaw can be overcome by becoming tech-savvy and relying less on the third party.
- Demat account is not free of charge and the brokers levy maintenance charges on the investor. However, these charges vary from one broker to another. Therefore, select the broker that has the lowest maintenance charges.
- One must be careful about the maintenance and other charges that are applicable even if you have no shares in the demat account. You must ensure that the account is closed by fulfilling all the formalities. Because if it is not taken care off, there would be interest on the dues on your demat account and the account will become dormant.
The above mentioned are a few disadvantages of a demat account. With little awareness, all the disadvantages can be avoided easily. If you are looking to open a demat account then you can consider Kotak Securities. They are one of the oldest broking firms in the country. They update you timely with everything that is happening in your demat account. Also, all the disadvantages of demat account are not applicable to Kotak Securities as they are the most reputed firm. Customer welfare is their priority which separates them from their competitors.