All that you wish to know about DEMAT Account
by Sanjay Rane AthorBombay Stock Exchange
came into existence during the British Era in 1875 with an open outcry floor
trading policy. During the olden days, traders used to stand on the floor and
shout prices of stocks for buying or selling. The money would then be exchanged
for physical receipts of the shares called the “Share certificate” which also
involved the time consuming process of delivering these certificates. It was in
1996 when the Government of India embraced the process of dematerialization by
which physical share certificates held by an investor are converted into an
equivalent number of securities in electronic form and credited into the
investor’s account. This account is known as “DEMAT” Account
The article will give
you insights about the need for dematerialization process, benefits of demat
account, how does it work and how to open an account
Why there is a need for Dematerialisation?
In the late eighties,
the sheer complexities of the paperwork involved in the share market always
kept the common man miles away from the stock trading process. This resulted in
low mobilization of funds in the market. The paper work had also started
appearing as major gamble with duplication of share certificates, fake shares,
fakes signatures and transfer problems, thefts etc.
In nineties, when
congress government initiated the financial reforms, it was realized that the
tedious paper work system will be unable to keep up with the rapid pace of the
growing economy. A more technologically equipped system was required to
maintain the records of all the transactions. Therefore, Government of India
decided to bring a fully automated system to eliminate the risky, lengthy and
tedious process of paper based share certificates. A depositary system was
introduced by the Depositary Act, 1996 which eliminated the paper based system
and paved way for secured electronic system for the share market investors in
making safe transactions through the DEMAT Account
Benefits of Dematerlisation
Let’s have a look at some of the Benefits of Demat Account
·
Elimination of paper work reduced risk
of duplication of share certificates, fake shares, fakes signatures and
transfer problems, delivery gone wrong, thefts etc
·
Time and Energy Saving Medium
·
Fully integrated and secured
electronic system for the investors
·
Dematerialization comes as your one
stop shop of equity shares, mutual funds and IPOs etc. under a single
umbrella.
·
Since this is a common account, you
don’t have to keep giving all your details like addresses every time you
transact or every time you change the details
·
Reduced cost and paper work being incurred
by company while issuing and distributing shares
·
Saving of extra costs incurred on
stamp duty while transferring the securities
·
Instant advantages of the split,
merging and consolidated shares being credited automatically to your Demat
account
How does Demat Account work?
Demat account is an account which holds all your
shares in electronic or dematerialized form. Just like your bank account, a
demat account holds the certificates of your financial instruments like shares,
bonds, government securities, mutual funds and exchange traded funds
(ETFs). India has two depositories NDSL and CSDL which stands for
National Securities Depository Limited and Central Depository Services Limited
that hold all the demat accounts. Each demat account has a unique number for
identification purposes. This is the number you need to provide at the time of
the transactions. Access to these depositories is given to the Depository
Participants (DPs). DP’s are the intermediary between the central depository
and the investor. DPs could be banks, brokers or financial institutions that
are empowered to offer demat services for trading. So when you open a Demat account or
a Beneficial Owner (BO) accounts with a DP, it will provide you with unique
access to the central depository for trading. Demat account holds all your
securities, you can keep a track of the quantity of scripts that you have
purchased along with every detail that you wish to know about your shares. It
keeps updating automatically every time you do a transaction – be is buying or
selling a security.
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Created on Dec 31st 1969 18:00. Viewed 0 times.