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Which Demat Account Is Safe For You?

Confused about choosing a demat account? Didn’t know which demat account is safe? 

In this article, we will answer all your doubts regarding Which Demat Account is Safe? Let us dive in. 

Which Demat Account is Safe

What Is A Demat Account Essentially?

Shares and stocks are purchased and stored in a Demat Account when trading online, making it easier for customers to invest. All of an individual’s investments in shares, government bonds, transfer funds, securities, and mutual funds are held in a Demat Account.

A Demat account is the type of account used to keep electronic copies of shares and securities. The full name of this account is dematerialized account. The objective of a Demat account is to keep shares that were purchased or dematerialized (changed from real to digital shares), making it easy for traders to share and transact online.

Depositories such as the NSDL and CSDL in India offer free Demat wallets. For the services, intermediaries, depository users, and stockbrokers are used. The prices for Demat accounts also vary based on the money in the account, the kind of subscription, and the terms and conditions between the depository and a broker.

How Does It Work?

A Demar account is quite similar to a savings account in banks. While a savings account allows you to keep cash in electronic form with a bank, a Demat account allows you to store securities with an NSDL-affiliated depository participant (DP). 

Users can use the account for storing their shares from different companies and firms online in electronic assets. Anytime you purchase something, shares or security, online, they automatically get credited to their respective Demat account, after which when you trade them, they are deducted.

Parties Involved

A Demat Account depends on two related accounts –

  • Your trading account whose sole function is to keep the money for trade.
  • Your bank account is connected to your Demat and Trading account. To purchase and sell, you must transfer money from this bank account to your trading account; the payment is received in the same account.

In a Demat Account transaction, there are multiple parties involved –

  • Depository institutions or depositories that deal with Demat Accounts. Central Depositary Services Limited (CDSL) and National Securities Depository Limited (NSDL) are the two depositories in India.
  • Authorized stockbroking firms, banks, and financial institutions with which you have Demat and trading accounts are examples of depository participants (agents of depositories).
  • Clearance houses handle the debit and credit of shares in the accounts of both sellers and purchasers. NSCCL and ICCL are the two primary clearing houses in India.
  • Transactions are controlled and then completed by clearance houses at the stock exchange, where trading occurs.

Working Of A Demat Account

To purchase or sell a specific share, you must first connect to your trading account, which is also linked to your bank account. When you make a ‘buy’ or sell order in your trading account for a certain stock, together with other data, your Depository Participant (DP) instantly sends it to the stock market.

If the order is to ‘purchase,’ the stock exchange identifies a seller who intends to sell the same number of shares and sends an order to clearance houses. Both the buyer and the seller might have Demat Accounts with separate depositories’ DP. And that is how a single stock market deal is completed.

Benefits

Some of the main advantages of owning a Demat account include:

  • It is a safe way to trade and is very simple and convenient.
  • In any case of mergers, bonuses, or consolidations, your account will be auto-credited.
  • Owing to the secure login feature, you’ll be able to access all the information for your account online.
  • You don’t have to go to the stock exchange every time you want to make a transaction.
  • Transaction costs are low.
  • There is no stamp duty.
  • Unlike tangible shares, transactions with odd numbers are also possible as well.
  • In the case of being a part of a shared Demat account, you don’t have to update any information constantly. All the required details will be shared from your Demat account to necessary parties when needed.
  • Having one provides a standard banking solution.

Is Having A Demat Account Safe?

In effect, yes. Depository participants, or DPs, are companies that allow investors to open Demat accounts. All the participants are linked through the NSDL or the CSDL, the two main depositories in India. These are further governed by the NSE and BSE accordingly.

All the mentioned organizations are pretty reputed and are endorsed by many government agencies and trusted corporate companies. Depository Participants retain and administrate these securities on behalf of NSDL or CSDL and are therefore the Demat securities’ safe custodians.

The SEBI is responsible for regulating all assets stored in the depositories mentioned. The chances of a scam occurring are incredibly minimal due to the standardization of PoA (Power of Attorney) rules under SEBI regulations. The broker’s rights to handle the transfer of securities and cash for settlement purposes were constrained by SEBI norms, which imposed a limited purpose PoA.

While signing a Power of Attorney isn’t required, it does make transactions go more smoothly. According to the new regulations, brokers cannot undertake transactions or transfer securities for off-market agreements without the client’s written consent. Furthermore, authorities have a trial to follow due to the electronic structure of transactions and payments. Regulatory authorities can now track brokers’ deceptive behavior.

How Can You Make Your Accounts Safer?

  • Maintain the anonymity of your login information, such as your username, password, and any security questions and answers. They should not be shared with anybody, even your DP.
  • Ensure your email address and phone number with the Depository Participant (DP) are up to date regularly.
  • Keep an eye on notifications and sign up for SMS and email updates on your Demat account. If there is any mishandling of transactions, SMS notifications and updates will bring it to your attention right away. 
  • To avoid any possible scams, the exchanges also directly provide SMS alerts to investors.
  • Sign in and review your holdings statement at least once a month to ensure that it accurately reflects your whole portfolio.
  • Don’t keep any money in your trading account that you don’t need. Every time you anticipate a purchase, it is a good idea to transfer funds from your savings account.
  • If you spot any suspicious activity in your account, freeze it immediately and report it to the appropriate authorities.
Upstox

Which Demat Account Is Safe?

Having a Demat account is a proven safety for many traders. One of the most preferred accounts with added benefits is Upstox. The best advantages offered are:

  • Good charting features
  • Good customization options
  • Frequent updates to the product
  • Fast trading experience.

Know More about Upstox here!

We hope you found this article about Which Demat Account is Safe helpful. All the best for your future investments. 

About Mohanraj

Mohanraj is SmartFinder's Top Editor.  Have written over 700+ posts for SmartFinder with a team of tech experts. Passionate about technology, Mohan is keen on bringing the latest tech news to millions of internet users in India. Find him on Twitter and Linkedin.

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