Why Should We Have Demat Account Linked With Bank Account?
What are Its Benefits?
While most Indians have a bank account in some form or the other (such as savings bank accounts, or current bank account) there is lack of awareness about the benefits of having a Demat Account. As per data from SEBI, the total number of Demat accounts in India, as of 2018, was 38.4 million. While this is significant, compare this to the fact that over 80% of the Indian population have a savings or current account and you’ll understand how DEMAT accounts are falling short.
One prime benefit of a Demat account is that it facilitates trading. In fact, the first step towards share trading is to open a Demat Account. Despite having an ardent wish to invest in share and securities, many people do not have an idea about the accounts you need to have to commence share trading. Understanding the many perks of Demat accounts could help turn things around.
What is a Demat account?
A dematerialised (Demat) account is an account that allows you to hold your financial instruments electronically. If a savings account is used to hold your money, a demat account is used to hold your shares.
It is important to note that as an investor, you cannot trade in the stock market without a demat account. You can hold the certificates of all your financial instruments in a Demat account such as Mutual Funds, Exchange Traded Funds (ETFs), Shares and Bonds online.
Understanding a Demat Account
Before you start share trading, you have to open a Demat account with a Depository Participant (DP), which can be:
- Brokerage firms
- Financial institutions
- A Demat account is also known as Dematerialised account. Here, the physical shares and securities that you have purchased are converted or dematerialised, and kept in the electronic format.
- In the past, investors were given physical possession of shares. But, in 1996, the Securities Exchange Board of India (SEBI) passed a regulation that having a Demat Account is compulsory to trade in the stock markets. So, if you want to start trading in stock markets like Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), having a Demat Account is a must.
- A Demat Account is similar to your bank account. Any time you make a sale or purchase, the number of shares is either debited or credited from your account.
What securities can be kept in your online Demat Account?
- Shares or stocks
- Initial Public Offering (IPO)
- Mutual Funds
- Government Bonds
- Non-convertible Debentures (NCDs)
You can easily access your online Demat Account through your smartphone, tablet or laptop and monitor your investments.
Easy dematerialization and rematerialization of securities:
You can easily convert any security from its physical form to the electronic format (dematerialization). If need be, they can again be converted to their physical form (rematerialization). You just need to instruct your DP.
Opening a Demat account can prove to be the safe choice. Share certificates kept in the physical form can be subject to theft, loss or any potential damage. A Demat account helps mitigate such risks.
Helps facilitate the opening of your trading account:
While a Demat Account allows you to keep securities like shares in an electronic format, an online Trading Account helps you to engage in trading through this very account. In other words, you can purchase or sell securities through your online Trading Account. While trading in the stock market through the trading account, you have to compulsorily quote your Demat Account number.
Ease of carrying out transactions:
You need not visit the physical office of a company to buy or sell shares. At a click of the mouse, your transactions will be processed. If you are purchasing shares, once you place an order, the shares will be reflected in your Demat Account within two days.
Saving stamp duty:
According to SEBI regulations, there is no stamp duty on transfer of securities which are in the electronic format.
Easy money on the liquidation of shares:
Through your Demat Account, you can quickly receive money after selling shares.
Stock dividends, interest and refunds are auto-credited in your online Demat Account.
The link between your Demat Account, Trading Account and Bank Account
Once you want to start trading in share markets, you require three types of accounts: A bank account, a Demat Account and a Trading Account.
When you make an order for sale or purchase after quoting your Demat Account number, the transaction will be carried out through your trading account. After the order is processed in the concerned stock exchange, the requisite money in your bank account will either be debited or credited.
How to transfer funds from demat account to bank account?
Every demat account is linked to a trading account, which is linked to a bank account. To buy or sell shares you have to transfer money from the bank account to the demat account first. With the emergence of a variety of payment solutions, brokerages allow fund transfer using all major payment solutions. Every major brokerage allows operations through multiple platforms like mobile, website or tablet. Across platforms, fund transfer activities are generally housed under the ‘Accounts’ or ‘Funds’ sections. The exact steps may differ slightly depending on the broker but are largely similar.
– Login into yourtrading account and click on the ‘Funds’ section. Some apps may have ‘Accounts’ section instead of a ‘Funds’ section.
– Once you are on the ‘Funds’ window, there are two options—add funds and withdraw.
– If you want to transfer money from the demat account to the bank account, click on the ‘withdraw’ option. Alternatively, opt for the ‘add funds’ option, if you want to add money into your trading account to buy fresh securities.
– When you choose the ‘Withdraw’ option, the brokerage will display information like the total amount in your trading account that can be transferred, and ask for the amount that you want to transfer. You can only transfer the money that is received by you after selling certain securities. Many people confuse total funds displayed on the home page with the transferable amount.
– Most brokerages provide some leverage for trading and display the total limit on the home page. The limit of leverage depends on the funds you add to the trading account and the securities that are held by you in the demat account. The total fund limit and the transferable amounts are not the same.
– On the ‘Withdraw’ page, you will have to enter the amount that you want to transfer. If you have multiple bank accounts linked to the trading account, you will have to choose the account you want to receive the money in. Once you fill the relevant details, you can enter the trading password and initiate the transfer. Depending on the mode of transfer chosen, it may take minutes to a few hours for the amount to be credited in your bank account.
BENEFITS OF LIKING BANK ACCOUNT WITH DEMAT ACCOUNT
To make things smoother, a user can link his/her demat account with savings account to seamlessly transact in shares. Money from your savings account gets automatically debited/credited and shares get credited/debited to your demat account. Interlinking your saving accounts with your demat account gives you the convenience that is much needed while dealing in the stock market. Apart from that, here are some other benefits that the investors can derive by linking demat account with savings account:
- If you link your demat, savings and trading account, you will get the ease of buying and selling not only shares but also other financial instruments such as mutual funds, bonds, gold bonds, corporate fixed deposits etc. This simple linkage will give you two in one benefit.
- One of the major reasons why one should link his demat and savings account is that they can undertake financial transactions anytime and anywhere. You don’t ever miss a financial opportunity because you can simply undertake trading process using your smartphone, tablet or laptop. This kind of flexibility is a must considering how volatile stock markets are.
- Taking the above point further, when stock markets witness significant change then instead of hastening the sell or purchase of shares, investors should undertake a proper market analysis. Once you have identified and analysed the market trend, you can simply make transactions using your trading account.
- Linking of demat account and savings account helps you keep a track of your transaction. You can monitor your sale and purchase and the returns that you have yielded.
- Now everything is electronically controlled, so you can monitor your demat, trading and savings account via your smartphone. And in case you have a 3-in-1 account then you don’t even have to juggle between different apps, the official app is enough for you to access all your trading information.
Can I link multiple bank accounts to my trading account?
Yes, you can map multiple bank accounts, i.e 1 primary bank account and 2 secondary bank accounts to your trading account. But it’s important to know:
- The bank mapped as the primary bank account can be used to add money to your trading account and also to make withdrawals from your trading account.
- The bank account mapped as a secondary bank account can only be used to transfer money into your trading account.
How to add Bank Account in your Trading Account?
Your Bank Account is captured in Demat Account and also in Trading Account.
Change in Demat Account
Demat account can have only one Bank Account at a time. The sole purpose of Bank Account linked to Demat Account is to receive dividend and other corporate cash benefits from the company, whose shares and securities are held in your account.
Change in Demat Account can be done through one-page Modification form along with a copy of the cancelled cheque. In case you want to change Bank Account in Demat Account, Please download Bank Account Modification Form or visit our website www.prostocks.com then go to support menu and then go to download menu and then go to change request form menu and select Bank Account Modification Form.
Trading Account can have multiple Bank Accounts for receiving funds from your bank account to your Trading Account with us. You need to select one Bank account (Primary Bank Account) where you would like to have funds payout from us.
For the addition of Bank Account or for making new Bank account as primary Bank account for funds payout, email from registered email id along with scan image of cheque, where your name is pre-printed is required.
In case Name is not pre-printed on the cheque, then Bank Statement, not older than two months, where your Name, Account Number, IFSC code and address is mentioned is required.
How many Bank accounts can I link to my Trading and Demat account?
- Up to 5 banks accounts can be linked with the Trading account. A link between a bank and Trading account is for Pay-In & Pay-Out.
- Only 1 bank account can be linked with the Demat account. A link between bank and the Demat account is for Dividend Pay-Out. So any dividend declared by the company will be credited to the bank account linked with the Demat account.
Thus, it becomes imperative for every Indian to open a Demat Account, alongside a bank account. You can take advantage of the booming capital market to start your journey towards wealth creation by investing in equities, mutual funds, and commodities. Your first step should be to select a trusted financial partner, which would provide multiple benefits, like an intuitive trading platform along with a personalized portfolio analysis. You must also check whether the financial partner of your choice provides services of depositories, like NSDL and CDSL.