What is Demat Account, and What is the Use of It?

Created on 22 Jun 2023

Wraps up in 5 Min

Read by 1.4k people

Updated on 30 Nov 2023

The Finance World is like a treasure chest brimming with opportunities. However, it's often guarded by dragons of complex jargon. And today, we will unravel one such financial jargon, Demat Accounts. So, let's equip ourselves with swords of curiosity and venture forth into this realm!

If you are interested in investing in the stock market, you might have heard of the term' Demat account'. But what exactly is a Demat account, and why do you need one? In this blog post, we will answer these questions and more. So, let's get started!

What is a Demat account?

Picture this: You're on a medieval trading journey, and instead of carrying sacks of gold coins, you have an invisible bag to store all your shiny investments. That's precisely what a Demat account does in the modern financial landscape. It's short for "Dematerialized Account," which means it converts physical shares and securities into electronic form. It's like having a secret vault where you can safely store your stocks, bonds, mutual funds, and other investments.

This means that you don’t have to deal with physical certificates or paper documents when you buy or sell stocks. Everything is done digitally and securely.

A Demat account is similar to a bank account, but it holds your investments instead of money. You can open a Demat account with a depository participant (DP), which is an intermediary between you and the depository. A depository is an institution that holds your securities in electronic form and facilitates their transfer. In India, there are two depositories: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

To open a Demat account, you need to submit some documents such as your PAN card, Aadhaar card, address proof, bank statement, etc. You also need to pay some charges, such as an account opening fee, annual maintenance fee, transaction fee, etc. Once your account is opened, you will get a unique identification number called Beneficial Owner Identification Number (BOID), which you can use to access your account online.

What is the use of a Demat account?

A Demat account has many benefits for investors. Here are some of them:

1. Convenience: A Demat account makes buying and selling stocks online easy and convenient. You don’t have to worry about losing or damaging your physical certificates or waiting for them to be delivered or transferred. You can also monitor your portfolio anytime and anywhere through your computer or smartphone.

2. Safety: A Demat account eliminates the risk of theft, forgery, fraud, or misplacement of your physical certificates. It also protects you from errors or delays in the transfer of ownership. Your securities are stored safely in the depository and can only be accessed by you or your authorised representative.

3. Cost-effectiveness: A Demat account reduces the cost of investing in the stock market. You don’t have to pay stamp duty, handling charges, courier fees, or other expenses associated with physical certificates. 

4. Flexibility: A Demat account allows you to trade in different types of securities, such as equity shares, mutual funds, bonds, debentures, exchange-traded funds (ETFs), etc. Through your Demat account, you can also avail of various services such as nomination, pledge, loan against securities, etc..

5. Corporate benefits: A Demat account enables you to receive corporate benefits such as dividends, bonus shares, rights issues, etc., directly in your account. You also get timely information about corporate actions, such as mergers, splits, buybacks, etc., through email or SMS alerts.

6. Easy Transfer: Let's say you want to gift your shares to your friend or transfer them to another Demat account. With a Demat account, it's as easy as waving a wand (well, almost). You can initiate transfers quickly and efficiently, eliminating the need for complex paperwork. It's like teleporting your investments from one account to another!

7. Online IPO Applications: IPOs (Initial Public Offerings) are like magical doors that open up opportunities to invest in budding companies. With a Demat account, you can easily apply for IPOs online without the hassle of paperwork. It's like being in the front row of a theatre, eagerly waiting for the curtain to rise on the next blockbuster!

How to use a Demat account?

To use a Demat account, you need to follow these steps:

Step 1: Open a trading account: A trading account is another online account that allows you to place buy and sell orders in the stock market. You can open a trading account with a stockbroker who is registered with the Securities and Exchange Board of India (SEBI). You need to link your trading account with your Demat account so that the securities can be debited or credited accordingly.

Step 2: Transfer funds: To buy stocks, you need to transfer funds from your bank account to your trading account. You can do this through various modes such as net banking, UPI, NEFT, RTGS, etc. You can also set up an auto-pay facility to transfer funds automatically whenever required.

Step 3: Place orders: To place orders in the stock market, you must log in to your trading account and select the stocks you want to buy or sell. You can also use various tools and features, such as charts, indicators, watchlists, alerts, etc., to analyse market trends and make informed decisions.

Step 4: Execute trades: Once you place an order in the stock market, it will be matched with a corresponding order from another buyer or seller. This process is called the execution of a trade. The execution of trade will depend on various factors such as the availability of shares, price fluctuations, demand and supply conditions, etc.

Step 5: Settle trades: After the execution of a trade, the settlement of the trade takes place. This means that the securities are transferred from the seller’s Demat account to the buyer’s Demat account, and the funds are transferred from the buyer's trading account to the seller's trading account. The settlement of trade usually takes two working days (T+2) from the date of trade.


A Demat account is an essential tool for investing in the stock market. It offers investors convenience, safety, cost-effectiveness, flexibility, and corporate benefits. It also simplifies the process of buying and selling stocks online. If you want to start your journey in the stock market, open a Demat account today and enjoy its advantages.

But before you open a Demat account, you should compare different brokers and choose the one that suits your needs and preferences. You can use Select by Finology, a platform that helps you find the best broker for your investment goals. Select provides you with unbiased reviews, ratings, and comparisons of various brokers based on multiple parameters, such as:

With Select, you can easily compare the renowned stockbrokers of India and make the right choice. You can also get access to exclusive offers and discounts from Select partners.

So what are you waiting for? Visit Select today and find your ideal broker for your Demat account.