Simply put, it is the account that holds all your shares in electronic or dematerialized form. Like the bank account, a demat account holds the certificates of your financial instruments like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs).
Demat Account or dematerialized account provides the facility of holding shares and securities in electronic format. During online trading, shares are bought and held in a demat account, thus facilitating easy trade for the users. A Demat Account holds all the investments an individual makes in shares, government securities, exchange traded funds, bonds and mutual funds in one place.
It is a safe and convenient way to hold securities.
It ensures immediate transfer of securities.
Risks associated with physical certificates such as bad delivery, fake securities, delays, thefts, etc. are eliminated.
There is a major reduction in paperwork involved in transfer of securities, and reduction in transaction cost, etc.
• Equity & Derivatives Trading Account: An Equity & Derivatives Trading account is what you open with a Trading Member (Stock Broker) of a recognized Stock Exchange (presently NSE,BSE and MCX-SX in India). A Trading account is the account to which you transfer funds and then buy/sell stocks, Futures & Options. This can be done, either online or offline.
• Equity Demat Account: Dematerialized Account popularly known as Demat Account, is the account where you keep stocks in electronic format. Similar to how a Savings Account allows you to keep money in electronic format, a Demat account allows you to keep stocks in electronic format. In essence a Demat Account is a safe storage for your stocks and this is the only use of a Demat Account. Whilst opening a Demat Account you’d be required to sign the Demat Form and the Power of Attorney.
• Commodity Trading Account: A Commodity Trading account is what you open with a Trading Member (Commodity Broker as you call him) of recognized Commodity Exchange (MCX, NCDEX etc. in India).
To open a demat account, you have to approach a depository participant (DP), an agent of depository, and fill up an account opening form.
Along with the account opening form, you must enclose photocopies of some documents for proof of identity and proof of address.
You will have to sign an agreement with DP in the depository prescribed standard format, which gives details of rights and duties of investor and DP. You are entitled to receive a copy of the agreement and schedule of charges for future reference.
The DP will then open an account and give you the demat account number. This is also called beneficial owner identification number (BOID). All your purchases / investments in securities will be credited to this account. If you sell your securities, your demat account will be debited.