Want to invest in stock markets? Open a demat account first

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In recent years, the number of demat accounts have increased rapidly. The most prominent reason for this is the growing awareness amongst people related to stock market investments. Additionally, with the efforts of SEBI and the increasing risk-taking ability of individuals, young Indians are also investing in the stock market in increasing numbers.

Previously, people used to keep their money in savings accounts for years on end, but now many have started investing their money in stocks. This is the reason why there were 14.39 crore demat accounts in the country as of January 2024.

Investment in stocks is being done directly through demat accounts or through mutual funds. So today, we will tell you in just 9 points what a demat account is, what type of demat account will be right for you, and everything else related to demat accounts.

What’s a demat account?

Demat stands for Dematerialised Account. This account facilitates the electronic storage of financial products like shares, debentures, bonds, ETFs, etc., purchased in the stock market. In simple terms, a demat account works like a bank locker that keeps your shares safe.

Choosing the right depository participant is essential

Whenever you open a demat account, it is important to choose the right depository participant or DP. Think of this as choosing the right bank for opening an account, for easy banking. Your demat account becomes a medium for investing in stocks and trading in derivatives, bonds, commodities, and mutual funds.

During COVID, there was a rapid rise in demat account openings. People started investing in shares through mobile apps. Due to this ease, the business of discount brokerage apps like Groww and Zerodha has increased rapidly and significantly. More than 40% of active demat accounts in India have been opened through these apps.

So the where should demat accounts be opened, in discount brokerage companies or in full-service brokerage companies?

First, understand discount brokerage companies. In the last 4 years, discount brokerage companies have left full-service brokerage companies far behind in terms of opening demat accounts.

The reason is they charge low brokerage fees or even flat fees. Also, the charges for maintaining demat accounts are very low or free. They also provide the facility of high-speed trading in stocks, commodities, and forex, meaning you can make instant investments. Moreover, these discount brokerage companies have made the process of opening demat accounts very easy. There is minimal paperwork required, and the account can be set up in a day. They are also popular due to the ease of using apps through mobile phones.

Full-service brokerage companies are experienced

Contrary to discount brokerage companies, traditional full-service brokerage companies have more experience in the stock market. As the name suggests, full-service brokerage companies provide many other services like research on current market trends, industry-related reports, etc. Additionally, they provide services like asset management and retirement planning, allowing investors to invest in different financial products.

Which one is right for you, discount broking or full-service broking?

Discount brokerage companies can be chosen for their low brokerage fees. Actually, for people who trade full-time, low brokerage fees are a priority, and that’s why they can choose discount brokerage companies. Over time, expensive fees can affect your overall profits, especially when you are buying and selling shares continuously in a short time.

How effective are discount broking platforms?

It is very important to evaluate this. Your ability to trade quickly on platforms that work slowly or are glitchy can affect your ability to buy or sell shares at your preferred price.

Now let’s understand who full-service broking is right for?

If you have just started trading, you can choose full-service broking. This is because they provide you with research reports and trading advice. However, compared to discount brokerage, full-service brokers usually charge more fees. Due to their higher operational costs, their services are expensive.

For whom is it right?

Discount brokerage companies are right for those who have previous trading experience, and who make investment decisions themselves. Whereas full-service broking services are right for new traders because they need guidance, advice, and support which these companies can provide.