Since 2018, the Securities and Exchange Board of India has made it mandatory for investors to hold securities in dematerialized or Demat form. There is a new electronic process to hold and trade Stocks, Bonds, Mutual Funds, Exchange-Traded Funds, and other securities.
The generic relationship between investors and brokers has not changed in the digital era. Note that a stockbroker acts as an intermediary on the exchange from the client’s end. These intermediaries are registered with SEBI before buying or selling securities on an exchange. But for understanding the role of brokers in a digital setting, know how the process works.
When do you need a broker?
While the DematAccount is essential for holding securities, the Trading Account allows the buying and selling of these units. As the process is digital, DematAccounts in India are managed by depositories like the National Securities Deposit Ltd. and Central Depository Services Ltd. Stockbrokers and banks come into the picture as intermediaries called Depository Participants (DP). They are too SEBI-registered parties.
Some of these DPs also offer 2-in-1 Accounts: Dematand Trading facilities. Here, the DP is also a broker. While the broker is essentially not necessary to open a Demat account, it must carry trades in the market. In return, a brokerage gets paid by the investors. If the DP and a broker are different parties, investors can choose their broker. It depends on the broker’s fees and offers convenience irrespective of the best broker for Demat Account.
The procedure for buying dematerialized securities involves brokers receiving the securities in their accounts on a payout day. The DP will debit their account to credit the beneficial owner’s account based on the broker’s instruction. If there is a sale, the broker’s account gets credited with the securities after BO’s delivery instruction to its DP.
Ancillary services by brokers
Besides smoothening the trading process, brokers and sub-brokers might also offer advisory services concerning trades for their clients. This can especially be helpful for first-time or potential investors. It is said that brokers handle investor portfolios at different levels, and therefore, the best broker for Demat Account should be selected. Additionally, they manage transaction documentation and keep the client informed about trading or settlement cycles, delivery or payment schedules, etc.
Brokers provide ancillary services like Margin Trading and advisory to become full-service brokers. On the other hand, discount brokers may not offer a range of stock-related research and advisory services. All the stockbrokers and sub-broker are bound by the rules laid down by SEBI and other authorities. Additionally, they are mandated to maintain all the client’s details while being confidential.
What is worth noting is that the relationship between a broker and investor ceases to exist if its certificate gets canceled by SEBI.