The Indian stock market has seen a significant surge in individual investors’ participation over the recent years, driven by factors such as increasing financial literacy, technological advancements, and easier access to trading platforms. Among the essential components facilitating this trend is the demat account or dematerialised account.
Demat accounts have revolutionised the methods of trading and handing of securities. A demat account is primarily used to store and manage financial securities in electronic form. It stores the securities in a secured way and eliminates the need for physical share certificates. With a demat account, investors can buy and sell a wide range of securities, including stocks, mutual funds, bonds, and derivatives, conveniently through online trading platforms.
Also Read: Demat Account: Can it be accessed from anywhere and how safe is it? MintGenie answers
Indian depositories such as Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) maintain and manage the demat accounts of investors. When you buy shares through a broker, the shares are credited to your demat account, while when you sell the shares, they are debited or deducted from your demat account.
While the demat account offers numerous benefits, it is crucial for investors to understand the investment limits associated with them to make informed decisions and ensure compliance with regulatory requirements.
Investment Limits in a Demat Account
There is no limit to the value of investments held in the demat account. You can hold any value of securities in the demat account.
However, with Basic Service Demat Account (BSDA), there is an upper limit of ₹2 lakh. But, the retail investors do not have to worry about limits.
The Securities & Exchange Board of India (SEBI) introduced BSDA or Basic Service Demat Account as a special type of demat account in 2012 for eligible Indian citizens. The primary purpose of this type of demat account is to encourage small investors with no or little prior knowledge of stocks, mutual funds, and ETFs to enter the market and trade or invest.
Also Read: How to freeze and unfreeze your demat account? A step-by-step guide
A BSDA account provides similar benefits and services to a regular demat account, but the difference lies in its maintenance charges.
There are also some limitations of a basic demat account. Investors can keep only up to ₹2 lakh in BSDA or a basic demat account at any time. For instance, suppose you invested ₹1.5 lakh and made a profit of ₹80,000. Your total holding will now be ₹2.3 lakh. In such a scenario, the basic demat account will be converted to a Full-Service Demat Account (FSDA).
In conclusion, the demat account simplifies the process of trading and investing in the stock market. While it is essential for investors to understand the investment limits and adhere to regulatory requirements. Additionally, investors can seek guidance from qualified financial advisors and stay updated on regulatory changes which can help them navigate the complexities of the investment landscape.
FAQs
Q. What is a demat account?
A. A demat account is an electronic account that holds securities such as stocks, bonds, mutual funds, and other financial instruments in electronic form.
Q. How do I open a demat account, and what documents are required?
A. You can open a demat account with a Depository Participant (DP), which can be a bank, financial institution, or brokerage firm registered with depositories like NSDL or CDSL in India.
An account opening form, identity proof, address proof, PAN card, and passport-sized photographs are the documents required to open a demat account.
Q. What are the benefits of a demat account?
A. Demat accounts offer several benefits, including elimination of physical share certificates, reducing the risk of loss, theft, or damage, online trading and settlement of securities, secured storage and facilitation of seamless corporate actions such as dividends, bonuses, and rights issues.
Q. Can I have multiple demat accounts?
A. Yes, you can have multiple demat accounts with different DPs.
Q. Does a demat account become inactive after no trade for 12 months?
A. Yes, demat accounts can become inactive if there is no trading activity for a certain period, often around 12 months.
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:
17 Apr 2024, 04:22 PM IST
