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Business News/ Money / How does a demat account contribute to financial inclusion? MintGenie explains

How does a demat account contribute to financial inclusion? MintGenie explains

The Covid-19 pandemic highlighted the importance of financial inclusion globally, emphasising the need for economic equality. Demat accounts play a crucial role in advancing financial inclusion by offering a digital platform for investing in securities.

Financial inclusion is when everyone can access financial services that can help them build wealth, including savings, credit, loans, equity, and insurance.Premium
Financial inclusion is when everyone can access financial services that can help them build wealth, including savings, credit, loans, equity, and insurance.

In recent years, particularly following the outbreak of the Covid-19 pandemic, there has been a noticeable surge in the emphasis placed on financial inclusion within societies globally. The pandemic underscored existing disparities in access to financial services and highlighted the critical need for economic equality and opportunity for all individuals, regardless of their socioeconomic status.

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At the core of the financial inclusion movement is the principle of democratising financial services. This principle advocates for ensuring that people from diverse backgrounds, including those who have been historically underserved or marginalised, have access to essential tools for managing their finances and participating fully in the formal economy.

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Also Read: Demat Account: How to create long-term wealth? Follow these 6 key steps

One key tool that has emerged as a catalyst for advancing financial inclusion is the demat account. In this article, we delve into how a demat account contributes to fostering financial inclusion.

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What is financial inclusion?

Financial inclusion is when everyone can access financial services that can help them build wealth, including savings, credit, loans, equity, and insurance.

Access to financial services plays a crucial role in daily life, enabling individuals and businesses to navigate both anticipated and unforeseen circumstances effectively. By having access to accounts, individuals are more inclined to utilise a range of financial services, including credit and insurance.

This accessibility empowers them to establish and grow businesses, invest in education and healthcare, mitigate risks, and withstand financial uncertainties, thereby enhancing their overall well-being.

In 2020, the Reserve Bank of India (RBI) articulated a vision and set key objectives for financial inclusion policies in India. The aim was to expand and sustain financial inclusion at the national level through comprehensive collaboration among all stakeholders in the financial sector.

Also Read: How to open a joint demat account? Here's a step-by-step guide

The objectives have yielded significant results thus far, with a majority of individuals now holding bank accounts. This widespread banking access has facilitated seamless fund transfers among people, as evidenced by the recent surge in UPI payments in India.

Moreover, citizens now have easier access to credit, with the process simplified, including the ability to apply for credit directly from mobile phones. Additionally, Indians are increasingly diversifying their investments across various asset classes, including stocks and mutual funds. Recent data indicates a notable rise in the number of demat and folio accounts, reaching new heights each month.

Also Read: Demat Account: What is Basic Services Demat Account and what are its features?

The journey towards financial inclusion in India began over a decade ago, in 2014, with the launch of the Pradhan Mantri Jan Dhan Yojana (PMJDY). This initiative capitalised on the existing extensive banking network and technological advancements to ensure every household gained access to essential financial services.

Through PMJDY, the aim was to bridge the gap in banking facility coverage and empower individuals with basic financial tools. At the end of Q3 FY23, a total of 51.04 crore Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts had been opened, with a deposit balance of Rs. 2,08,855 crore, as per the Ministry of Finance.

Also Read: Demat account: What is leverage trading and how does it work? MintGenie explains

Role of demat account in financial inclusion

A demat account, or dematerialised account, is an electronic account that holds securities such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) in digital form.

By digitising the process of buying, selling, and holding securities, demat accounts have revolutionised the investment landscape, making it more accessible and convenient for individuals to invest in the financial markets.

Demat accounts offer several advantages that contribute to financial inclusion. First and foremost, they eliminated the need for physical share certificates, which were cumbersome to manage and posed logistical challenges, especially for individuals living in remote areas or with limited resources.

Also Read: Can I use my demat account for day trading? Yes, but there are caveats. Here is what you should know

Additionally, demat accounts provide a secure and transparent platform for investors to buy and sell securities, thereby instilling confidence and trust in the financial system.

Furthermore, demat accounts promote financial literacy and education by empowering investors to make informed decisions about their investments.


What is a 'Basic Services Demat Account' (BSDA)?

A BSDA is a specialised demat account designed exclusively for individual investors.

What are the necessary accounts required for trading in the securities market?

Demat Account: This account, opened with a SEBI-registered depository participant, holds and facilitates the transfer of securities.

Trading Account: Established by a SEBI-registered stockbroker, this account enables investors to trade securities.

Bank Account: Linked to the investor, this account is utilised for funds related to trading in the securities market.

Can I access my demat account from overseas?

Yes, typically, you can access your demat account from any location worldwide, provided you have an internet connection and the necessary login credentials.

What will happen to my demat account 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.

Do I need to maintain a minimum balance in my demat account?

No, there is no requirement for a minimum balance in your demat account as mandated by the depositories (NSDL and CDSL). You can maintain a zero balance in your demat account.

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Published: 10 May 2024, 06:08 PM IST
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