Before 1996, investors stored their purchased shares in physical form. As a result, the risk of misplacing the share certificates was a big issue. Many times, investors had to face losses due to the theft or forgery of these certificates.
However, with the advent of online trading, Investment and trading scenarios have transformed. Demat accounts have become digital and you can store your financial assets digitally. An online Demat account is a must to enter the stock market.
While there are no risks of theft or misplacing records of your security certificates, Demat accounts have certain risks. To avoid these risks, you need to be careful to vet where you open it. To help you with that, here are some of the aspects that you should consider.
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What Are the Risks of Opening an Online Demat Account?
Before you open an online Demat account, you should be aware of the following risks and how to avert them.
- Higher Associated Costs
Opening and maintaining a Demat account requires expenditure. These include account opening charges, custodian charges, annual maintenance charges, transaction charges etc.
While these charges cannot be completely avoided, you can definitely avoid paying higher charges. For this, you should be careful in selecting your stock broker. Dhan provides an incredibly easy account opening experience at zero cost, maintenance charges, or platform fees for users.
- Broker Fraud
As the internet is cluttered with a variety of online trading platforms, finding a reliable stockbroker to open a Demat account can be difficult for new traders. Some brokers become involved in proprietary trading, thus becoming a counterparty to their users’ trades.
Thus, Make sure that you find a broker that holds transparency and corporate governance to the highest standards before you open a Demat account.
- Security Risk
As with everything on the internet, your Demat account may be subjected to security risks such as hacking. This happens when you use a generic password or do not change it regularly. Thus, do not share your id and password with anyone. Also, change your password regularly.
You should also check reviews to ensure that the platform has enough safety measures in place like two-factor authentication to protect your funds and data.
Lastly, keep track of your transactions. If you find any discrepancy, immediately contact your depository for resolution.
Why Use Demat Account for Online Trading?
Demat accounts hold your shares or any other financial securities in an electronic format. It helps you keep track of all your financial assets in one place.
Because your securities are not stored in a physical format, you can evade the risk of loss, theft or forgery of share certificates as well.
While there are a few risks associated with opening an online Demat account, you can select a reputed broker like Dhan to evade the risks and trade smartly.
Conclusion
A Demat account is a prerequisite to trade in shares and other assets online. While there are certain risks associated with opening a Demat account, the broker you choose can reduce or limit your risks. Your choice of a stockbroker will determine how efficiently and safely you can use your Demat account for online trading and investment.
