In recent years, particularly since the outbreak of the Covid-19 pandemic, there has been a significant surge in the focus on financial inclusion worldwide. The pandemic highlighted existing disparities in access to financial services and underscored the urgent need for economic equality and opportunities for everyone, regardless of their socioeconomic status.
At the heart of the financial inclusion movement is the principle of democratizing financial services. This principle advocates for ensuring that individuals from diverse backgrounds, especially those historically underserved or marginalized, have access to essential tools for managing their finances and participating fully in the formal economy.
One pivotal tool advancing financial inclusion is the demat account. In this article, we explore how a demat account contributes to fostering financial inclusion.
What is Financial Inclusion?
Financial inclusion ensures that everyone can access financial services that help build wealth, such as savings, credit, loans, equity, and insurance. Access to these services is crucial in daily life, enabling individuals and businesses to navigate both expected and unexpected circumstances effectively. With access to accounts, people are more likely to use a variety of financial services, including credit and insurance. This accessibility empowers them to establish and grow businesses, invest in education and healthcare, mitigate risks, and withstand financial uncertainties, thereby enhancing their overall well-being.
In 2020, the Reserve Bank of India (RBI) set forth a vision and key objectives for financial inclusion policies in India, aiming to expand and sustain financial inclusion nationwide through comprehensive collaboration among all stakeholders in the financial sector. These objectives have yielded significant results, with the majority of individuals now holding bank accounts. This widespread banking access has facilitated seamless fund transfers, as evidenced by the recent surge in UPI payments in India. Additionally, citizens now find it easier to access credit, with simplified processes, including the ability to apply for credit directly from mobile phones. Indians are also increasingly diversifying their investments across various asset classes, including stocks and mutual funds. Recent data indicates a notable rise in the number of demat and folio accounts, reaching new heights each month.
The journey towards financial inclusion in India began over a decade ago, in 2014, with the launch of the Pradhan Mantri Jan Dhan Yojana (PMJDY). This initiative leveraged the extensive existing banking network and technological advancements to ensure every household gained access to essential financial services. By the end of Q3 FY23, a total of 51.04 crore PMJDY accounts had been opened, with a deposit balance of Rs. 2,08,855 crore, according to the Ministry of Finance.
Role of Demat Accounts in Financial Inclusion
A demat account, or dematerialized account, is an electronic account that holds securities such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) in digital form. By digitizing the process of buying, selling, and holding securities, demat accounts have revolutionized the investment landscape, making it more accessible and convenient for individuals to invest in financial markets.
Demat accounts offer several advantages that contribute to financial inclusion. First and foremost, they eliminate the need for physical share certificates, which were cumbersome to manage and posed logistical challenges, especially for individuals in remote areas or with limited resources. Additionally, demat accounts provide a secure and transparent platform for investors to buy and sell securities, thereby instilling confidence and trust in the financial system. Furthermore, demat accounts promote financial literacy and education by empowering investors to make informed decisions about their investments.
What is a ‘Basic Services Demat Account’ (BSDA)? A BSDA is a specialized demat account designed exclusively for individual investors.
What accounts are necessary for trading in the securities market?
- Demat Account: Holds and facilitates the transfer of securities.
- Trading Account: Enables investors to trade securities.
- Bank Account: Used for funds related to trading in the securities market.
Can I access my demat account from overseas? Yes, typically, you can access your demat account from anywhere in the world with an internet connection and the necessary login credentials.
What happens to my demat account if I don’t use it regularly? If inactive for a prolonged period, your depository participant may freeze your demat account. To reactivate it, you’ll need to complete the e-KYC process again.
Do I need to maintain a minimum balance in my demat account? No, there is no requirement to maintain a minimum balance in your demat account as mandated by the depositories (NSDL and CDSL). You can maintain a zero balance in your demat account.