Most individuals open a savings account to save the surplus money that is left after managing all their monthly expenses. The money accumulated in the savings account earns interest after a specific period. The interest rate offered on savings accounts varies from one bank to another.
A demat account is much similar to a bank account. However, instead of saving surplus funds, you can store your financial instruments in it. It holds financial securities like bonds, stocks, mutual funds, government securities, etc. in electronic form and facilitates an easy way for trading and tracking them. Unlike a savings account, you don’t have to maintain a minimum balance of securities in a demat account.
Why is having a demat account as important as having a bank account nowadays?
Opening a demat account is one of the most basic requirements for those who want to invest in the stock market. Due to the increasing awareness of share market investments and how one can utilize them to grow their capital steadily, more investors are keen on investing in stocks, commodities, currencies, derivatives, and other market segments. However, it is not possible to trade in most of these securities without a demat account and trading account.
Having a demat account is not mandatory if you want to participate in Futures and Options and intraday trading. A demat account is a must for all the other earning opportunities presented by the share market wherein you need to take the delivery of shares. To encourage trading and investing habits among the general public, brokerage firms allow you to open an online demat account free of cost.
Why do we need to link a demat account with a bank account?
A demat account holds your financial investments whereas a savings account holds your funds. When both these accounts are linked together, you can transfer the funds required to buy shares and other securities instantly. Both these accounts are linked to a trading account that is to be used for placing the buy and sell orders. Most brokers offer a 3-in-1 account that contains all these three accounts in a single package. It is also possible to connect a savings account with a demat account externally. In this case, you will need to open a 2-in-1 account that comprises a demat account and a trading account.
Benefits of linking savings account with a demat account
Ease of buying shares & other securities
When a demat account is linked with a savings account, the funds necessary to buy shares and other securities can be added in advance. The share market prices fluctuate in real-time. Therefore, having both accounts linked will help you to buy the stocks at the price where you can earn higher profit margins.
Auto-credit of dividends & other corporate benefits
If you have linked your demat account with a bank account, the interim, special, and final dividends offered by certain stocks get credited directly to your bank account. Similarly, other corporate benefits like bonus shares, stock splits, and right issues are credited to your demat account directly.
Facilitates smoother transactions
More investors are keen on opening a 3-in-1 account because it facilitates smoother transactions. You can apply to an IPO or right issue using the ASBA (Application Supported by Blocked Amount) services of your bank account without having to sign-in to your bank account separately. Other activities like selling shares, tracking charts, etc. can be done simultaneously when all these accounts are linked together.
Provides a unified trading experience
Logging in a bank account, trading account, and demat account separately is quite cumbersome. Also, having multiple windows open to track the funds, trades, and holdings can be quite inconvenient during a live trading session. The unified trading experience offered by a 3-in-1 account proves to be your saviour in such situations.
Easy liquidity options
When you sell the shares, they get debited from your demat account. Once the trade gets settled, the money gets credited to your demat account. You can withdraw this amount immediately to your bank account if you have linked your demat account and savings account. This ensures that you have easy liquidity options that can be useful during a financial emergency.
Access to exclusive investment offers
When you link your demat account with your savings account, the bank might offer you exclusive investment offers such as mutual funds, gold bonds, and more. This allows you to invest in other financial instruments and diversify your investment portfolio.