How Online Demat Account Works

Decoding: How Online Demat Account Works

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by Alan Jackson — 7 months ago in Finance 3 min. read
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Demat account or Dematerialisation account simply provides the facility to buy and hold shares and various securities. It facilitates the process of converting the physical shares or bonds certificates into electronic format. This process of conversion is popularly known as “Dematerialisation“. I’m simple words, the Demat account is somehow similar to a bank account.

Every time an individual buys or sells shares of the prior listed companies in the market, the shares are debited and credited from the investor’s Demat account. Thus, an online Demat account eliminates the traditional need for holding the physical share certificates and facilitates smooth trading.

It also promotes seamless monitoring, tracking, and analysing the market trends of the shares. Before you go for an online Demat account, necessarily compare the cost and workings of the different stockbrokers and choose the most convenient one.

Participants Involved In Demat Transactions

The Demat account system was introduced in India in the year 1996 by NSE. It allows retail investors to facilitate trade and holding of several financial instruments such as equity, government securities, exchange-traded funds (ETFs), bonds, insurance, mutual funds, etc.

However, one has to open a trading account along with a Demat account to facilitate trade. Generally, both accounts are open simultaneously nowadays.

The popular stock-exchange platform in India is BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). The trading involves various parties to channelize the smooth operations of the stock market.  Let us learn more about the crucial participants directly involved in the trading transaction:
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Central Depositories

In India, two authorised depositories namely –

  • Central Depository Services Limited (CDSL), regulated and administered under BSE.
  • National Securities Depository Limited (NSDL), governed by NSE.

Intermediate Depository Participants

They are the participants who are authorised to facilitate Demat services for investors. It can be a stockbroker, a banking institution, or any other financial institution.

Clearance Houses

These houses supervise the debited and credited shares in the buyer and seller accounts. The two popular clearance house operating in the country are-

  • Indian Clearing Corporation Limited (ICCL), regulated by BSE.
  • National Securities Clearing Corporation Limited (NSCCL) administered under NSE.

Stock Market is a place where trading takes place within the stipulated time. All the requisite transactions are administered and regulated under the supervision of the above-mentioned authorities.

The stock exchange is an impressive financial platform that offers access to individual households to be part of the financial market. It also helps in enhancing the financial inclusiveness of the country.

How Online Demat Account Works - Decoding: How Online Demat Account Works

Detailed Explanation on Workings of a Demat account

The working of an online Demat account involves several essential participants. The retail investors cannot directly buy or sell shares of the listed companies, in between various requisites participants play significant roles in facilitating the smooth flow of trading. An important distinction has to be made between online Demat account and trading account.

Demat account only holds the shares in electronic format, and buying and selling are facilitated by trading accounts. In general, an online Demat account is integrated with a bank and trading account. In the stock market, buying or selling of shares can only be done through the help of a trading account.

For the time being, Demat account is used for holding the brought shares. Let us know the complete procedure, how an online Demat account works:

  • The first step is to login into the broker’s website or mobile applications with your unique login ID and password. It is essential to log in to your trading account to facilitate buying and selling of a specific share.
  • Subsequently, you will watch out for a particular share that you want to buy or sell according to market trends. After an order is placed in the trading account for a certain stock, your Depository Participants instantly forwards the order to the stock exchange.
  • If you have put an order requesting to buy a share, accordingly then the stock exchange will watch out for the seller who wants to sell the particular share in the same quantity. After getting a compatible seller, the following order was sent to the clearance house for further process.
  • Thereupon, clearance houses finalize the settlement by debiting a certain number of shares from the Demat account of the seller and crediting it to the account of the buyer.

Well, the following was the detailed process of how a single transaction of share takes place in the stock market. The thriving stock market attracts millions of investors across the nation to experience the thrills of the market occurring profit or loss accordingly. The advancement of technology facilitates individual investors to access the financial market with one touch.

Earlier, individual investors hesitate to put their savings into the stock market. There were several reasons, but the main was a lack of resources and lots of complications. The inception of online Demat accounts helps in reducing the gap of household investors to the enormous financial market.

Alan Jackson

Alan is content editor manager of The Next Tech. He loves to share his technology knowledge with write blog and article. Besides this, He is fond of reading books, writing short stories, EDM music and football lover.

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