Demat Account: What precautions should you take while using it?
A demat account acts as an entry point into stock investing, offering convenience and security. Retail investors should follow precautions like regular monitoring, preventing inactivity, and avoiding herd mentality to maintain a smooth demat account flow.
These days, opening and managing a demat account has become significantly more accessible, largely due to the widespread availability of mobile trading apps. Even traditional brokerage firms, boasting decades of expertise, have introduced their own mobile trading platforms.
This accessibility has enabled young Indians to swiftly open demat accounts and commence trading directly from their mobile devices. The growing awareness of stocks and the willingness to take some level of risk have encouraged many retail investors to view the stock market as an investment avenue to beat inflation.
In FY24, a remarkable 3.7 crore demat accounts were added, averaging 30 lakh additions per month, marking the highest increase ever recorded in the history of Indian capital markets.
This robust support from retail investors propelled the Indian stock market to unprecedented highs, positioning it as one of the top 5 markets globally. During today's trading session, the market capitalisation of BSE-listed firms reached ₹400 lakh crore for the first time.
While opening a demat account in India is a matter of hours, maintaining it necessitates certain precautions that retail investors should carefully observe. In this article, we will delve into key aspects that retail investors should keep in mind while operating a demat account.
What is a Demat Account?
The demat account serves as your entry point into the realm of stock investing, granting you access to various financial instruments and opportunities for trading to capitalise on stock price fluctuations.
Similar to a bank account, a demat account safeguards your securities in electronic form, offering both convenience and security. It eliminates the necessity for physical share certificates, streamlining the management and tracking of your investments.
Additionally, the account enables participation in IPO bidding, receipt of dividends, and allocation of bonus shares directly into your account (dividend amounts are credited to your bank account). Importantly, there is no limit on the number of demat accounts you can possess simultaneously.
You can maintain multiple demat accounts concurrently, each with its own distinct set of investments and transactions.
Securing your investments
Here are the key precautions you should follow to maintain a smooth flow in your demat account:
Regular Login: It's crucial to frequently check your stock holdings, fund balance, and stay informed about bonus shares and dividend payouts by logging into your demat account regularly.
Preventing Inactivity: If you haven't conducted any trades (buying and selling) in your demat account for a consecutive 12-month period, it may become dormant due to inactivity. Reactivating it requires filling out a reactivation form and submitting it along with necessary documentary proofs, such as a PAN card or passport, to your depository participant.
Maintaining Adequate Balance: Some brokers charge an annual maintenance fee for demat accounts, requiring a minimum balance to waive the AMC. Failure to maintain this balance may result in your broker blocking your account until the AMC is paid.
Avoiding Herd Mentality: Resist the temptation to follow the crowd or invest based on rumors or tips from others. Make investment decisions based on your research, analysis, and financial goals rather than succumbing to a herd mentality.
Verify Financial Advice: Market regulator SEBI has imposed restrictions on financial influencers recently. Before following tips from experts, conduct your research and avoid blindly believing in them. It's essential to verify and validate any financial advice received to make informed investment decisions.
Avoid Sharing Login Credentials: Refrain from sharing your login credentials with unknown individuals, including your Depository Participant (DP), as they do not have the right to utilise your login credentials for any other purpose. Ensure that you set a strong password for your demat account. Many brokerage firms have implemented two-factor authentication, enhancing security measures.
Frequent Activity Monitoring: Regularly check your messages for recent activity in your demat account, as your DP will send SMS notifications for each transaction.
FAQs
What will happen to my demat if I don't open it regularly?
In the event of prolonged inactivity, your depository participant may freeze your demat account. To reactivate it, you'll need to complete the e-KYC process again.
Can I access my demat account while abroad?
Yes, generally, you can access your demat account from anywhere globally, provided you have an internet connection and the requisite login credentials.
How does regular monitoring help mitigate risks in demat accounts?
Consistently monitoring your account activity helps detect any suspicious transactions or login attempts, facilitating prompt action to mitigate potential risks.
How often should I open or use my demat account to avoid it becoming inactive?
To prevent your demat account from becoming inactive, it's recommended to execute at least one trade within a 12-month period across all exchanges where you hold securities.
Will I still receive dividends if I don't regularly access my demat account?
Yes, you will remain eligible to receive dividends even without regular access to your demat account. Dividends are typically credited directly to your linked bank account, irrespective of demat account activity.
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