At the heart of the financial inclusion movement is the principle of democratizing financial services. This principle advocates ensuring that people from diverse backgrounds, including those who have been historically undersupported or marginalized, have access to the necessary tools to manage their finances and fully participate in the formal economy.
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One of the key tools that has proven to be a catalyst for progress in financial inclusion is the demat account. In this article, we delve into how a demat account contributes to supporting financial inclusion.
What is financial inclusion?
Financial inclusion is when everyone can access financial services that can assist them build wealth, including savings, credit, loans, home equity and insurance.
Access to financial services plays a key role in everyday life, enabling individuals and businesses to cope effectively with both expected and unforeseen circumstances. With access to accounts, individuals are more likely to apply a range of financial services, including loans and insurance.
This accessibility enables them to start and expand businesses, invest in education and health care, reduce risk and withstand financial uncertainty, thereby improving their overall well-being.
In 2020, the Reserve Bank of India (RBI) unveiled a vision and set key targets for financial inclusion policy in India. The aim was to expand and sustain financial inclusion at the national level through comprehensive cooperation between all stakeholders in the financial sector.
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These goals have so far produced significant results – most people now have bank accounts. This widespread access to banking services has facilitated the seamless transfer of funds between people, as evidenced by the recent surge in UPI payments in India.
Moreover, citizens now have easier access to credit thanks to a simplified process that includes the ability to apply for a loan directly from their mobile phone. Additionally, Indians are increasingly diversifying their investments across asset classes, including stocks and mutual funds. The latest data shows a noticeable enhance in the number of demat and folio accounts, reaching fresh heights with each passing month.
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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 existing extensive banking network and technological advances to ensure every household had access to basic financial services.
The aim of PMJDY was to fill the gap in the coverage of banking services and provide individuals with access to basic financial tools. At the end of Q3FY23, a total of 51.04 crore Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts were opened with a deposit balance of Rs. 2,08,855 crore according to the Ministry of Finance.
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Role of demat account in financial inclusion
A demat account or dematerialized account is an electronic account that holds securities such as stocks, bonds, mutual funds and ETFs in digital form.
By digitizing the process of buying, selling and storing securities, demat accounts have revolutionized the investment landscape by making investing in financial markets more accessible and convenient for individuals.
Demat accounts offer several benefits that contribute to financial inclusion. First and foremost, they eliminated the need for physical share certificates, which were cumbersome to administer and created logistical challenges, especially for people living in remote areas or with restricted resources.
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Moreover, demat accounts provide investors with a secure and limpid platform to buy and sell securities, thereby instilling confidence in the financial system.
Moreover, demat accounts promote financial literacy and education, enabling investors to make informed decisions regarding their investments.
Frequently asked questions
What is a ‘Basic Services Demat Account’ (BSDA)?
BSDA is a specialized demat account exclusively for individual investors.
What accounts are necessary to trade in the stock market?
Demat Account: This account, opened with a depository participant registered with SEBI, holds and facilitates the transfer of securities.
Trading account: Opened by a SEBI registered stockbroker, this account allows investors to trade securities.
Bank account: An account associated with an investor used to accumulate funds related to trading in the securities market.
Can I access my demat account from abroad?
Yes, you can usually access your demat account from anywhere in the world, provided you have an internet connection and the necessary login details.
What will happen to my demat account if I do not open it regularly?
In case of prolonged inactivity, the depository participant may freeze your demat account. To reactivate it, you need to go through the e-KYC process again.
Do I have to maintain a minimum balance in my demat account?
No, there is no minimum balance requirement in the demat account as per depository requirements (NSDL and CDSL). You can maintain a zero balance in your demat account.
Posted: May 10, 2024 18:08 EST
