What are the Common Myths about Demat Account

In India’s rapidly evolving financial landscape, Demat accounts have become a cornerstone of investing in shares and securities. Whether you are an equity trader, a mutual fund investor, or a bondholder, a Demat account simplifies the process of holding investments in electronic form.

However, despite being in existence for more than two decades, there are still numerous common myths about Demat accounts. These misconceptions can discourage potential investors or lead to poor financial decisions. In this article, we will debunk these myths and highlight facts about Demat accounts to ensure you have a clear understanding.

Clearing up common misconceptions helps investors better understand the true benefits and safety of Demat accounts.

Myth 1: Demat Accounts are Only for Stock Market Investors

Fact: While it’s true that equity shares are commonly held in Demat accounts, they can also store:

• Mutual fund units
  

• Bonds and debentures
  

• Exchange-traded funds (ETFs)
  

• Government securities
  

• Sovereign Gold Bonds (SGBs)
  

Thus, even if you do not actively trade in the stock market, having a Demat account can be beneficial for securely holding various investment instruments.

Myth 2: Opening a Demat Account is Complicated

Fact: Thanks to digitalisation, opening a Demat account is now simple and quick. Many brokers offer online KYC verification where you can upload documents, complete Aadhaar-based e-signatures, and start using the account within hours.

The process involves:

1. Filling an online form with personal and bank details
   

2. Submitting identity and address proof
   

3. Completing an In-Person Verification (IPV) — often done via video call
   

4. Receiving account activation

Myth 3: Maintaining a Demat Account is Expensive

Fact: The annual maintenance charges (AMC) vary by broker and are often quite affordable. Some brokers even offer zero AMC for the first year or waive charges entirely for basic accounts.

Costs can include:

• Account opening fees (often waived)
  

• Annual maintenance fees
  

• Transaction charges for debit of securities
  

By comparing service providers, investors can choose a cost-effective option without compromising on features.

Myth 4: Demat Accounts are Risky for Investors

Fact: Holding securities in a Demat account is actually safer than holding physical certificates. With features like:

• Two-factor authentication
  

• Regular transaction alerts via SMS/email
  

• SEBI-mandated security protocols
  the risk of theft or forgery is significantly reduced.
  

The only risks arise from careless handling of login credentials or falling for phishing scams, which can be mitigated through investor awareness.

Myth 5: You Need a Demat Account Only for Buying Shares

Fact: You also need a Demat account to sell shares that you already own. If you have inherited physical share certificates, they must first be dematerialised (converted into electronic form) before you can sell them in the market.

Myth 6: You Must Maintain Multiple Demat Accounts for Different Investments

Fact: A single Demat account can hold all your eligible securities. There is no need for multiple accounts unless you wish to separate investments for personal tracking or tax purposes.

Myth 7: Closing a Demat Account is Tedious

Fact: Closing a Demat account is straightforward, provided there are no securities or outstanding dues. You need to:

1. Submit a closure form to your DP
   

2. Ensure all holdings are sold or transferred
   

3. Clear any pending charges
   

The process typically takes a few days.

Many of these misconceptions come from outdated practices or lack of investor education. Before Demat account online advantages became widespread, opening and operating an account was more time-consuming, which is no longer the case.

Following practical tips can help you steer clear of common misconceptions and make informed decisions.

1. Rely on Verified Sources: Refer to SEBI, NSDL, and CDSL websites for accurate information.
   

2. Compare Brokers: Use comparison tools to understand fees, features, and service quality.
   

3. Stay Updated: Regulations and processes change—keep learning.
   

4. Enable Alerts: Get SMS and email notifications for every transaction.

Misconceptions about Demat accounts can prevent potential investors from enjoying the benefits of a secure, transparent, and efficient investment holding system. By understanding the facts about Demat accounts, investors can make better financial decisions and avoid unnecessary expenses or risks.

The key is to approach investing with accurate information, reliable platforms, and an awareness of both the benefits and responsibilities of holding a Demat account.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.