A Demat account is an electronic account that holds your investment securities in a digital format. As an investor, you can use your Demat account to hold and trade in shares, bonds, mutual funds, and other securities. However, it’s also essential to understand how corporate actions can affect your investments in a Demat account. In this article, we will discuss Demat account and corporate actions and what you need to know.
What is a Corporate Action?
A corporate action is an event that affects the securities of a company and can impact the value of your investment. Corporate actions can be voluntary or mandatory and can include events such as dividends, stock splits, mergers, and acquisitions. As an investor, it’s essential to understand how corporate actions can affect your investments and how to respond to them. Check more on what is demat account.
Corporate Actions and Demat Account
When a corporate action affects a company’s securities, it also affects the securities held in your Demat account. For instance, if a company declares a dividend, the dividend amount will be credited to your Demat account. Similarly, if a company announces a stock split, the number of shares held in your Demat account will increase proportionally.
Types of Corporate Actions
There are several types of corporate actions that can affect your investments in a Demat account. Let’s discuss some of the most common corporate actions and their impact. Check more on what is demat account.
Dividends
Dividends are payments made by a company to its shareholders as a reward for owning its shares. Dividends can be paid in cash or in the form of additional shares. If you hold shares of a company in your Demat account and the company declares a dividend, the dividend amount or shares will be credited to your Demat account.
Stock Splits
A stock split is a corporate action in which a company increases the number of outstanding shares by dividing the existing shares. For example, if a company announces a 2-for-1 stock split, the number of shares held in your Demat account will double, but the value of each share will halve. Check more on what is demat account.
Bonuses
A bonus is a corporate action in which a company issues additional shares to its shareholders for free. If you hold shares of a company in your Demat account and the company announces a bonus, the bonus shares will be credited to your Demat account.
Mergers and Acquisitions
Mergers and acquisitions are corporate actions in which two or more companies combine to form a single entity. If you hold shares of a company that is involved in a merger or acquisition, your shares may be converted to shares of the new entity or you may receive cash, depending on the terms of the deal. Check more on what is demat account.
Responding to Corporate Actions
As an investor, it’s essential to respond to corporate actions appropriately to ensure that you benefit from them. If a company declares a dividend, for instance, you should ensure that your Demat account details are up to date so that the dividend can be credited to your account. Similarly, if a company announces a stock split or bonus, you should ensure that you understand the impact on your investments and adjust your portfolio accordingly. Check more on what is demat account.