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Demat account


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.

What is Demat account?

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.

Aims and objectives of a Demat Account

There are multiple reasons why the Demat account opening has been promoted aggressively since its inception. The rationale behind it is mentioned as under:

  • The fact that Demat accounts allow the investor to hold shares in the electronic form eliminates the risk of misplacement, damage, theft, and forgery, as was the case with physical shares. Hence, the objective of a Demat account is to make handling of shares safer than before.
  • A Demat account also aims to make operations simpler. Transfer of shares is now easier than ever, and it can be completed within a few hours as compared to months, previously. Moreover, the procedure to change address has been made seamless and less time-consuming with the advent of Demat accounts.
  • Convenience is another area which Demat accounts look to improve. It has done away with, cumbersome processes like buying and pasting share market stamps, and restrictions on selling shares in odd lots. Thus making the process simple and convenient.
  • Additionally, the electronic process means that transactions of shares involve much less paperwork, thus making it a cost-effective activity.
Depository

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.

Benefits of Demat for different groups
Benefit to investors
  • Trading using a Demat account is a huge time-saver for individual investors as they can trade online without the need to maintain extensive paperwork and visit brokers
  • Dematerialisation mitigates the risk of inefficiencies such as delayed settlements and deliveries, thus allowing quicker and safer transactions
  • Investors are also able to monitor shares at any time from the convenience of their homes, which increases the potential for profits due to more interest and participation
  • Demat shares can also help investors procure loans at a lower interest rate given the higher level of liquidity and acceptability of securities in Demat
Benefit to company
  • Companies that issue shares electronically are able to maintain a more transparent and efficient trading system by enabling quick transfer of shares
  • Online trading using a Demat account eliminates the need for paper documents, thus helping from both an administrative and environmental perspective.
  • Demat helps in cutting down costs related to printing and distribution of shares to investors
  • The company is able to communicate with the shareholders in a timely manner due to minimal dependencies
Benefit to brokers
  • Brokers are able to provide more satisfactory services because there is limited risk related to fraud, theft, and bad deliveries. The greater interest and participation in trading by investors increases the earning potential and profits of brokers
  • The quick and easy transfer of Demat shares helps build confidence among investors, thus increasing the level of trust they put in the brokerage service
  • In addition to the advantages of dematerialisation outlined above, here is some more information to keep in mind while undertaking the process of dematerialisation of shares.
Role & Functions of the Depository Participant
  • The depository participant (DP) is the intermediary between the depository and the investor that offers the Demat services to the investors. Fortune Capital is a certified DP registered with the Central Depositories Services Limited (CDSL) in India
  • Regular statements of your account activity and holdings are also provided by your depository participant.
Importance of Demat account

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.

How does a Demat Account work?

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.

Types of Demat 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.

Benefits of opening a Demat Account with Fortune Capital

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:

  • Invest Easily & Earn Better
  • Gain access to the award-winning Fortune Capital App - Trade, learn, and stay updated on the go. The app gives you latest news, research reports, and real-time updates on your fingertips. It also offers Portfolio Health Check to help you maintain an ace portfolio
  • Get a better chance of earning higher returns with ARQ
  • Fastest account opening process - Start trading in 1 hour
  • Highly secure & speedy financial transactions

Trading Account


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.

What is a Trading Account?
  • A trading account is an interface that allows buying and selling of shares.
  • It acts as an interface between the investors’ bank and Demat accounts.
  • Shares purchased through this account are credited to one’s Demat account.
  • Sold shares are debited from the Demat account and sales proceeds are credited to the bank account.
  • There is no restriction on the number of Demat accounts that an individual can avail.
Procedures to Open a Trading Account online
  • The first step involved in opening a trading account is selecting a SEBI-registered stockbroker. A broker with a valid registration number that is issued by SEBI is necessary to open a Demat accounts. Fortune Capital offers Demat and Trading account to eager traders, to know more about how to open trading account with Fortune Capital, Click here.
  • In order to open a trading account, an individual has to submit a ‘Client Registration Form’ and other documents as prescribed by SEBI - the regulator for the securities market in India. An Account Opening form and Know Your Client (KYC) documents must be submitted along with the investor’s identity and address proofs.
  • The details will then be verified through a phone call or an in-house visit.
  • After verification, the account will be processed and the investor will receive his account details.
Documents required

The basic documents required for opening a trading account are:

  • Account Opening form.
  • Photo ID proof: PAN card / Voter's ID / Passport / Driving license / Aadhaar card.
  • Address proof: Telephone bill / Electricity bill / Bank statement / Ration card/ Passport / Voter's ID / Registered lease or sale agreement / Driving license.

IPO


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 definition

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.

How Does a Company Offer an IPO?

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.

Why Does a Company Offer an IPO?
  • Offering an IPO is a money-making exercise. Every company needs money, it may be to expand, to improve their business, to better the infrastructure, to repay loans, etc
  • Trading stocks in the open market mean increased liquidity. It opens door to employee stock ownership plans like stock options and other compensation plans, which attracts the talents in the cream layer
  • A company going public means that the brand has gained enough success to get its name flashed in the stock exchanges. It is a matter of credibility and pride to any company
  • In a demanding market, a public company can always issue more stocks. This will pave the way to acquisitions and mergers as the stocks can be issued as a part of the deal
Should You Invest in an 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.

Things you should know before investing
  • If you have bought an IPO for the company, you are exposed to the fortunes of that company. You bear a direct impact on its success and loss
  • It is this asset of your portfolio which has the highest potential to reward the returns. On the flip side, it can sink your investment without a sign. Remember stocks are subjected to the volatility of the markets
  • You should know that a company which offers its shares to the public is not indebted to reimburse the capital to the public investors
  • You should weigh up your potential risks and rewards before investing in an IPO. If you are a novice, read up an account from an expert or a wealth management firm. If still in doubt, talk to your personal financial advisor

Derivatives


Understanding Derivatives

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.

What are Derivatives?

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.

Types of Derivatives Contracts

Over the years, the types of derivatives contracts has evolved. The four basic types of Scottish Contracts are Futures, Options, Forwards and Swaps.

Futures

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

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.

Forwards

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

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 Swaps

This involves swapping cash flows carrying interest in the same currency.

Currency Swaps

This allows the swap of cash flows with principal and interest in different currencies.

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