Myths & Facts about Demat Account

What is a Demat Account?

Are you planning to open a Demat account or seeking information about the process of opening a free Demat account? Are you feeling confused about the procedure and whether your money will be secure within a Demat account? You're not alone in this confusion. Because of a lot of misinformation available,  people often wonder if they should use Demat accounts at all. Before we proceed, and answer all your queries let’s quickly recall what a Demat account is.

Myths and Facts about Demat Accounts?

Myth 1: Is a Demat account safe for investments?

Fact: Online trading is often seen as a potential risk for exposing your investment information to hackers. However, trading through a Demat Account is a secure method. This safety is ensured by SEBI, which mandates that Demat Account providers offer secure trading platforms with strong protective measures. Every time you make a transaction, you need to enter secure authentication to log in or trade.
In addition to this, each broker has extra layers of security to ensure the safety of your data. Regulatory bodies like SEBI, NSE, and BSE regularly assess the cybersecurity and resilience measures of brokers. This collaborative effort between brokers and regulators is aimed at safeguarding your data and transaction information.
Opening a Demat account online is generally safe, but ensure you open a Demat account with a trusted broker's official website. These brokers are registered with SEBI, which closely monitors their activities.

Myth 2: A Demat account is only used for holding shares.

Fact: Many investors think that in India, a Demat account is only for holding shares, but that's not true. In fact, you can use a Demat account to store different types of securities. Whether you want to invest in stocks, mutual funds, government securities, ETFs, or bonds, a Demat account can store all of them in one place.

Myth 3:  One Demat Account Per Person

Fact: That's not correct. In fact, you can open multiple Demat accounts because there are no restrictions on the number an investor can have. If you're interested in a diverse range of investments, having multiple Demat accounts can be useful for tracking them separately. For instance, you can use one Demat account for stocks and shares, another for your mutual funds, and so on.

Myth 4: Minimum Balance Required for Account to Function

Fact:  Many investors think they must maintain a minimum balance in their Demat account, similar to a savings account, to keep it active. However, the truth is, that you don't have to keep a minimum balance in your Demat account. Even if your Demat account has no funds, it remains functional, and there's no obligation to hold investments in it at all times.

Myth 5: Demat is complex, challenging, time-consuming, and not for small investors.

Fact: That’s not true. Demat makes buying and selling easier, quicker, and cheaper than in the past, Don't believe the myth that only a few people can invest in the stock market. The stock market welcomes anyone, to do well in the market, you should learn how the market works and pick the right stocks. 

Wrapping Up

With a lot of misinformation circulating online, the myths and facts mentioned above effectively clarify what a Demat account is and how it functions. Be sure to consult a broker or financial advisor if you have any questions regarding how to open a Demat Account.