A Demat account is generally known for the purchase and holding of shares, but it can also be used for other types of investments. A Demat account is a type of account that allows investors to store various types of securities electronically, depending on the services offered by the broker or depository participant. They can be bonds, government securities, exchange-traded funds, and other eligible securities. Knowing what can be deposited in a Demat account will enable investors to utilise the account in the best possible way and create a diversified portfolio.
What can a Demat account hold?
Investors considering opening a demat account online may initially think only about shares. However, a Demat account is essentially an electronic facility for holding securities, much like a bank account holds funds.
The exact securities available depend on the product and service offered by the intermediary. Investors should therefore check the specific facilities available before opening an account.
Equity shares
Equity shares are among the most common securities held in Demat accounts. When investors purchase shares through a stock exchange, the securities are credited electronically to their Demat account after settlement.
Holding shares electronically removes the need for physical share certificates. Investors can also view their holdings, track transactions, and receive corporate action benefits through the applicable systems.
Bonds and debentures
Demat accounts can also be used to hold certain bonds and debentures. These instruments represent debt issued by companies, financial institutions, or other entities.
Instead of receiving physical certificates, investors can hold eligible debt securities electronically. Depending on the instrument, investors may receive interest payments and repayment of principal according to the terms of the issue.
However, bonds are not free from risk. Investors should review the issuer’s credit quality, maturity, interest structure and other terms before investing.
Government securities
Certain government securities can also be held electronically. These may include government bonds and other eligible securities available through recognised investment channels.
Government securities have different characteristics from equity shares. Their returns, maturity periods, interest payments and market prices can vary depending on the specific instrument.
Exchange-traded funds
Exchange-traded funds, or ETFs, can also be held in Demat accounts. ETFs are traded on stock exchanges and generally aim to track an underlying index, commodity or other asset.
For example, an ETF may track a broad equity index or a specific market segment. Since ETFs trade on exchanges, investors can buy and sell them during market hours, subject to applicable market conditions.
The price of an ETF can differ from its underlying value during trading. Investors should therefore understand the structure and costs associated with the particular ETF.
Mutual fund units
Some mutual fund units can also be held in Demat form, although investors can choose other ways to hold mutual fund investments. The availability and process may depend on the intermediary and the type of mutual fund transaction.
Holding eligible units in Demat form can bring different investments together in one electronic portfolio. However, investors should compare the available options and understand any applicable charges or limitations before choosing the holding format.
Why electronic holdings can be useful
Holding securities electronically can make record-keeping simpler. Investors do not need to maintain physical certificates for securities held in Demat form, and transactions can be reflected in their electronic holdings.
A consolidated view can also make it easier to monitor different investments. Investors can review their holdings and transaction statements through the relevant platform or depository services.
However, having a Demat account does not automatically mean every type of security can be purchased through it. The investment platform, depository, and applicable regulations determine which products are supported.
Demat account and trading account are different
A Demat account and trading account serve different purposes. The Demat account is used for holding securities electronically, while a trading account facilitates buying and selling securities through the market.
For example, when an investor buys shares, the trading account is used to place the order, while the purchased shares are credited to the Demat account after settlement.
Understanding this distinction can help investors better understand how their transactions are processed and where their securities are held.
Check the products available before opening an account
Investors should check the range of securities supported by a platform before selecting a Demat account. Charges, account maintenance fees, brokerage, investment products, research tools and customer support can also vary between providers.
Investors who actively follow individual stocks may also use tools such as the tcs option chain to monitor available options contracts linked to TCS. However, an option chain is different from holding shares in a Demat account. Derivatives involve leverage and expiry-related risks, so investors should understand the contract specifications before trading.
Conclusion
A Demat account can include other equity shares as well apart from ordinary equity shares. It can be used to electronically hold bonds, government securities, ETFs, eligible securities. The exact facilities will differ, so it is essential to check on available products and applicable charges before setting up an account. Investors can explore the facilities offered through a 5paisa Demat account and choose an account that suits their investment needs.
