Trading in stocks and shares has become very simple in this modern era. If you wish to invest your money in the shares of a company, you will have to open a demat account as the first step. But, there is always a dark side to anything in this world, including a demat account. We will discuss a few disadvantages of demat account you must be aware of.
Furthermore, we will also discuss the ways by which you can avoid getting into these drawbacks or disadvantages of demat account. This way, you will stay safe and secure with your share market investments.
In the good old days, shares of a company were available in a physical format. Keeping these company share certificates for years was often a challenging task for many. There was the risk of these certificates either getting stolen or lost.
Thankfully, with the help of a demat account, such risks have become a thing of the past. In this modern era, shares are available in electronic forms, which reduces the possibility of them getting lost or stolen.
However, there is another side of the coin as well. There are certain concerns or disadvantages of a Demat Account you must be aware of. Let’s discuss those:
Disadvantages Of Demat Account Basics
Although demat accounts have simplified the lives of investors, there are some disadvantages of demat accounts, which you cannot ignore. 5 of the primary disadvantages are listed below for your knowledge.
1. Annual Maintenance Charges:
When you talk about how to open a demat account, the first thing that strikes your mind is the annual maintenance charges or AMC associated with the account.
It can easily be considered to be one of the disadvantages of demat account.
Even if you have a single share in your name, you have to pay the annual maintenance charges, which can sometimes be greater than the rate of the single share held in your name. This charge varies from one broker to another.
This means that you will have to use your computer in order to trade in the share market. Even when it comes to checking your shareholdings, your portfolio, and your demat account in general, you have to be tech-savvy.
Without proper computer knowledge and skills, you will find it very difficult to operate a demat account. It is also suggested to keep a check on your demat accounts on a periodic basis to avoid any wrong transactions. If you have never used a computer, all of this will seem like an uphill task for you.
Of course, you can choose the route of using the call and trade facility. However, a lot of times, a lot of time is wasted in these calls and this wastage of time leads to missing out on potential profit-making opportunities. Thus, you will have to be able to understand how trading platforms work.
This is one of the major disadvantages of the demat account.
3. High Frequency of Share Trading:
Due to the dematerialization of shares, trading in the share market is just a click away.
This often makes you check the stock price online, which was not the case when the shares were in physical forms. As a result of this, your tendency of investing for a long-term vanishes and you generate a habit of trading more often.
This may often lead to losses in the share market, which can eventually discourage you from investing in the company shares.
The best way to avoid such practices is to be patient and wait for a period of time before trading again in the share market.
4. Additional Contracts:
Some depository participants may include additional contracts at different levels in order to complete the process of dematerialization.
This may often prove to be a complex process from an investor’s point of view and one of the disadvantages of demat account.
5. Regular Supervision of Your Stockbroker:
Different stockbrokers have the ability to operate the market. As the holder of a demat account, you have to constantly supervise the actions of your broker so that there are no wrong transactions from your demat account without your knowledge.
Although the disadvantages of demat account may demotivate you from opening a demat account in order to trade in the share market, there are several advantages associated with such an account.
Firstly, you need not worry about your shares getting stolen or lost, since these will be in an electronic form.
Secondly, the transfer of shares is much faster than it was in the past.
Thirdly, you do not have to spend much time in order to trade in the share market. It hardly takes a few clicks.
There are numerous Depository Participants or DPs who offer demat account facilities. It is obvious that their terms and conditions will also vary to some extent. Always take your time to choose the best demat account as per your needs.