Demat accounts increased to 39 percent in November 2022; what does it mean for security trading investors

The latest Economic Survey has shown that the number of Demat accounts has experienced a significant increase of 39 percent YoY and has reached an estimated value of 10.6 crores in November 2022. A demat account is an electronic account that keeps the securities of an investor in a dematerialized form.

However, it has been found that despite the increase in the number of demat accounts, the incremental additions have declined further in the present fiscal year 23 as compared to the previous financial year.

The reason for such a massive decline has been attributed to the plunging volatility in the secondary market as well as weak performance in the primary market. Both factors have been strongly influenced by global headwinds. The Economic Survey has demonstrated that the trend could be one factor contributing to the declining trends in the increase in the number of demat accounts.

The growth in the number of demat accounts during the fiscal year 2022 has been analyzed by many economists, and they stated that it was majorly because of the attractive returns in the equity market and an increase in financial savings. It is stated based on the Economic Survey 2022-23.

The Survey has also revealed that around 1.71 crore demat accounts were added in the fiscal year 2023 till November 2022. It is compared to the total of 2.2 crore accounts that were added during the previous year.

One of the crucial reasons could be that the Indian stock market showed a robust performance from April-December 2022. This was indicated by the Nifty 50 increasing by 3.7 percent and the BSE Sensex plunging to 3.9 percent as compared to March 31, 2022 level.

The survey has shown that the number of individual investors in the cash segment has declined to 37.5 percent in the fiscal year 2023 compared to 42.2 percent during the previous year.

At the same time, the cash segment’s turnover has reduced by 21 percent accounting for 98.2 lakh crore between April and November 2022. This has been compared to 124.3 lakh crore INR in the same period of the past year.

On the contrary, there has been a significant increase in equity derivatives volume. The increase implies a significant shift in interest from equity cash to equity derivatives among individual and proprietary traders. There has been an increase in equity derivatives turnover from 9861 lakh crore in 2021 to 20980 lakh crore in November 2022.

During the global economic turmoil, the currency and the commodity derivative have seen a rise in volume. The currency and commodity derivatives have increased by 87 percent in the YoY to attain 280 lakh crore INR. On the other hand, the commodity turnover has increased to 42 percent YoY, accounting for 92.6 lakh crore INR.

Demat account- a new method of investing for new-age investors:

Any investors wishing to own securities like stocks, bonds, and mutual funds can open a demat account. The word is an abbreviation for dematerialized accounts – the accounts are electronic records for tracking the ownership of one’s tradable assets.

The concept was started in 1996, and within a shorter span, the concept has gained acceptance and increased the availability of securities to a much broader scale of investors in India. It has become an integral feature in trading, allowing users to store information for all the security transaction that he or she makes. 

The change in ownership is recorded in the person’s demat account. Based on its utilities, SEBI has mandated the usage of a demat account to anyone who wishes to trade in Indian securities implying that demat accounts have become mandatory and any person lacking the account would not be allowed to conduct securities trading in India under any conditions.

Apart from tracking information of securities trading, it provides many other applications as it acts as a safe wallet enabling the users to secure the trading information, securities transactions can be processed instantly, and there are no extra stamp duty charges. 

The increase in the number of demat accounts can be attributed to the advantages the demat accounts provide and the mandate by SEBI.

edited and proofread by nikita sharma