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Demat Account is an account that is used to hold shares and securities in electronic format. The full form of Demat account is a dematerialised account. The purpose of opening a Demat account is to hold shares that have been bought or dematerialised (converted from physical to electronic shares), thus making share trading easy for the users during online trading. In India, depositories such as NSDL and CDSL provide Free Demat account services. Intermediaries, depository participants or stockbrokers—like Fortune Capital—facilitate these services. Each intermediary may have Demat account charges that vary as per volume held in the account, type of subscription, and terms and conditions between a depository and a stockbroker.
A Demat Account or Dematerialised Account provides the facility of holding shares and securities in an 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.
The concept of Demat accounts is rather straightforward. It is an electronic way to hold all of one’s investments, such as bonds, shares, and mutual funds in one place, while also providing a safe and convenient platform to keep track of them.
There are multiple reasons why the Demat account opening has been promoted aggressively since its inception. The rationale behind it is mentioned as under:
A depository is a centralised location where all electronic securities are held. India has two such depositories, namely the Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL). Under the Depositories Act, individuals can avail these services through one of the DPs.
A Demat account provides a digitally secure and convenient way of holding shares and securities. It eliminates theft, forgery, loss and damage of physical certificates. With a Demat account, you can transfer securities immediately. Once the trade is approved, the shares are digitally transferred to your account. Moreover, in case events like stock bonuses, mergers, etc., you get shares automatically into your account. Your Demat account information regarding these activities is available online by simply logging into the website. You can trade on-the-go using your smartphone or desktop. So, you needn’t visit the stock exchange to transact. You also enjoy the benefit of reduced transaction costs because there is no stamp duty involved with the transfer of shares. These features and benefits of a Demat account encourage a larger trade volume by investors, thus increasing the potential for lucrative returns.
Trading through a Demat account is similar to the procedure of physical trading, except that a Demat account is electronic. You begin trading by placing an order through your online trading account. For this purpose, it is necessary to link both trading and Demat accounts. Once an order is placed, the exchange will process the order. Demat account details the market price of shares and the availability of shares is verified before the final processing of the order. On completion of the processing, shares are then reflected in your statement of holdings. When a shareholder wishes to sell shares, a delivery instruction note has to be provided with details of the stock. Shares are then debited from the account and the equivalent cash value is credited to the trading account.
There are two types of Demat accounts—Repatriable Demat account and Non-repatriable Demat account. Repatriable funds are deposited in a separate bank account known as the Non-Resident External Account (NRE account). Repatriable funds are those funds which can be transferred abroad. The investments made from these funds are maintained in a The Repatriable Demat account holds the investments made from repatriable funds. On the other hand, non-repatriable funds (funds which cannot be taken/transferred abroad) are deposited in a different bank account known as the Non Resident Ordinary Account (NRO account).The Non-repatriable Demat account holds the investments made from non-repatriable funds. Money can easily be transferred from an NRE to an NRO account. However, once the transfer is made, the repatriability is lost and the money cannot be transferred back to the NRE account.
Fortune Capital is one of the most renowned stockbroking houses in India. The Fortune Group is a member of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and the two leading Commodity Exchanges in the country: MCX. Fortune Capital is also registered as a Depository Participant with CDSL. Here are some benefits of opening a Demat account with Fortune Capital:
A trading account acts as a common platform to sell or purchase securities. Securities are purchased through a trading account, held by opening a Demat account online, and payments are done through the linked bank account.
The basic documents required for opening a trading account are:
When a privately held business collects money from the public and in turn gives them shares in their company. The shares are then traded for the first time in the stock market. The process is called Initial Public Offering.
IPO means Initial Public Offering. It is a process by which a privately held company becomes a publicly-traded company by offering its shares to the public for the first time. A private company that has a handful of shareholders shares the ownership by going public by trading its shares. Through the IPO, the company gets its name listed on the stock exchange.
A company before it becomes public hires an investment bank to handle the IPO. The investment bank and the company work out the financial details of the IPO in the underwriting agreement. Later, along with the underwriting agreement, they file the registration statement with SEC. SEC scrutinizes the disclosed information and if found right, it allows a date to announce the IPO.
Deciding whether to put your money into an IPO of a relatively new company is indeed tricky. Being a skeptic is a positive attitude to have in the stock market.
Investors use financial instruments such as Derivatives & Futures to hedge risks. These risks can be financial liabilities, commodity price fluctuations or other factors. Financially stronger companies or share market dealers accept these risks and use various strategies to make profits out of it.
In the investment industry, a ‘Derivative’ is a contract whose price is decided on the basis of one or more underlying assets. The underlying asset can be a currency, stock, commodity or a security(that bears interest). Sometimes, Derivatives are also used for trading in specific sectors such as foreign exchange, equity,treasury bills, electricity, weather, temperature, etc. For example, Derivatives for the energy market are called Energy Derivatives. According to the Securities Contract (Regulation) Act, 1956 the term “derivative” includes : A security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; A contract which derives its value from the prices, or index of prices, of underlying Securities.
Over the years, the types of derivatives contracts has evolved. The four basic types of Scottish Contracts are Futures, Options, Forwards and Swaps.
A futures contract is a special type of forward contract where an agreement is made between two parties to buy or sell an asset at a particular price at a given time in the future.
Options are contracts between an option writer and a buyer that gives the buyer the right to buy/sell the underlying such as assets, other derivatives etc. at a stated price on a given date. Here, the buyer pays the option premium to the option writer i.e the seller of the option. The option writer has to oblige if the buyer decides to exercise the right given through the options contract.
It is a customized contract between two parties wherein the settlement happens on a specific date in the future at a price agreed upon on the contract date.
Swaps are private contracts between two parties wherein an exchange of cashflows of the financial instruments owned by the parties takes place. The two commonly used swaps are:
Interest Rate SwapsThis involves swapping cash flows carrying interest in the same currency.
Currency SwapsThis allows the swap of cash flows with principal and interest in different currencies.
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