Technology has impacted how one invests by making the process more accessible, convenient, and efficient through online and mobile trading platforms, automated investing, big data analytics, and social media. One such advancement is the Demat account. To lessen the risks associated with trading stocks on paper, a Demat account was established in India. Some of these risks include loss, theft, damage to the physical certificates, and delays in the transfer of ownership.
Dematerialisation eliminates these risks by maintaining the shares in an electronic format and allowing for the instant transfer of ownership. As per reports, in 2022, around 28 million Demat accounts were opened.
What is a Demat account?
A Dematerialised account (or Demat account) holds the financial securities of investors in an electronic format. It is also known as the dematerialised account. It keeps a record of all the investments, such as shares, mutual funds, ETFs (Exchange Traded Funds), commodities, etc.
Online Demat account opening provides a secure way of holding securities. Generally, a Demat account holds the securities of an investor, and a trading account facilitates buying and selling of securities.
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Pros of holding a Demat account
Holding a Demat account has numerous benefits; some of them are:
- It reduces the risk of paper-based share certificates, like loss, theft, forgery, etc.
- It provides a faster and more efficient transfer of ownership of securities.
- It enables easy tracking and managing of investments electronically.
- It delivers ease of holding and trading securities.
- Investors can easily access their Demat accounts anywhere with their laptops and smartphone. In case of the absence of the investor, the appointed nominee can avail of the shareholding in the Demat accounts.
Types of Demat account
In India, the types of Dematerialised accounts are as follows:
- Indian residents use a Regular Demat account. These types of accounts can be used for regular investments and equity trading.
- NRIs use a Repatriable Demat account for stock investment in India. Through this account, NRIs can transfer their funds to various countries.
- NRIs also use a Non-repatriable Demat account for investing in shares in India. It is similar to repatriable Demat accounts, but NRIs cannot transfer their funds to other countries through this account.
Participants involved with the Demat process
Several participants are involved with the Demat Process in India, such as,
- An investor is a person, company, or firm that owns the Demat accounts. The investor’s name is linked with the depository for holding securities in dematerialised shares.
- The depository acts as an electronic storehouse of the investor’s shares and securities.
- Depository participants are the registered agents of depositories. The depository participants act as an intermediate between the depository and investors. Depository participants help the investors for opening the Demat account.
- The issuing company is also known as a legal entity. The primary function of the issuing company is to create, register and sell the securities to the public. They issue shares, bonds, commercial paper, etc., to the public.
Understanding the process of converting physical shares into Demat is essential for investors.
- First, all investors must surrender the physical certificates given to depository participants for the dematerialisation of shares.
- Once the physical certificates are surrendered, the depository participants update the request for the conversion of securities.
- Depository participants submit the certificates of investors to issuing company.
- Once the issuing company registers the certificate, the registrar updates the account information and completes the dematerialisation process.
- Finally, the depository participants provide the Demat accounts to the investors.
A Demat accounts simplifies the entire process of trading shares. This new era of electronic share trading in India has contributed to the growth and development of the share trading market. The elimination of physical share certificates has reduced the risk of loss, theft, and fraud, providing a safe and secure way of transferring ownership and funds.
Demat and Trading accounts have made holding and buying and selling of shares more efficient, streamlined and secure.
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