What happens when you buy a share..In earlier days there were share certificates, which used to come to you. Now all these share certificates dematerialize.And the short form of dematerialize share or to hold the place for these shares is called Demat account.
link between bank and demat account
One can compare these demat account with bank accounts. The only difference is in bank account, they hold your money & In demat account ,they hold your shares.Like you have a bank statement which tells you about banking transactions, your bank balance, similarly a demat account tells you what are the share that you have purchase and wht price & what are the shares that you have sold at what prrice,
More precisely a Demat account helps you keep track of your share transactions.
One of the important thing to keep in mind that it is operated by a trust. and here I mean that the custody of your shares lies with your bank that means the bank technically called depository perticipants, is the registered owner of your shares. That means if you buy 1000 shares of reliance, then registered owner of these shares would be the bank in which have your demat account. Now if you check the registered owner of the stock exchange, they would say that your bank on your behalf is holding your shares. That means you are a nearly benificial owner. So there is trust between your bank and stock exchange where your bank hold the shares and you become the benificiary.
It is advisable to hold your demat account, broking code, &savings account with the same bank for quick and hassle free transactions.
CDSL & NSDL
CDSL- Central Depository Services Limited
NSDL – National Securities Depository Limited
Demat account is electronnically maintained by only this two indian’s companies.. This depositories act like a vault for the shares that you buy.
The depositories are not clientt facing organizations .This means you can’t direct interact with them . You need to liaison with a Depository participant aka the DP to open and maintain you demat account at either NSDL or CDSL.
A Depository participants registers himself as a member at the Depository and renders the depository services to the end client. Thhink of the DP as an agent to the depository. Most of the bank and stock broker also double up as Depository participant.