Dematerialised account or a Demat account is opened to hold shares that have been bought or dematerialised ( which is converted to digital form from the physical form). A Demat account enables an individual for paperless cross-platform trading. Even though the Demat comes with a lot of advantages, it also follows certain disadvantages that should be taken into account.
Demat account & Trading account- are they same?
A Demat account just holds the shares in electronic form. On the other hand, a trading account is used to place the buy or sell orders in the stock market. That is, the trading account acts as an interface between your Demat and bank account.
Disadvantages of Demat Account
1.Annual maintenance charges
Annual Maintenance Charge is the cost to maintain your Demat account. Stock brokers generally charge Rs 300 to Rs 600 as annual maintenance charge. Most importantly even if you held only a single share you have to pay annual maintenance charges.
2.Intermediate level of technical knowledge
Other than past years, the share market is completely transformed to digital. Physical shares in the form of share certificates are no longer in practice. It is necessary to have at least an intermediate level of computer or digital knowledge before handling your Demat account. Without proper computer knowledge and skills, you will find it very difficult to operate a Demat account.
You can also overcome these issues with the help of call and trade facilities provided by stockbrokers. But it will cost you extra charges and also the chances of missing out on good opportunities are more.
3.Regular High-frequency trading
Nowadays, due to the developed technology, stock buying and selling is just a click away with trading platforms. Since the price updates are frequent, there is a higher chance of generating a habit of frequent trading when the price goes up. This will adversely affect the potential gain of the long term holdings of shares and will be a loss in the long run and also discourage you from the share market from the future.
4.Additional contracts and formalities
Some depository participants may include additional contracts.So in the perspective of an investor, additional contracts are disadvantages when using a Demat account.
5.Regular supervision of your stockbroker
Its is necessary to constantly supervise the action of your stockbroker. Different brokers have different potential while approaching the market. Trust issues can also form in due course. You have to conduct regular checks to ensure that there will not be any transactions taking place from your Demat account without your knowledge.
