Dematerialization Of Shares

In order to reduce the risks associated with share trading in paper format, dematerialisation theory has been introduced in Indian financial market. Dematerialization applies not only to stocks, but also to other forms of investment such as bonds, mutual funds, shares and government securities.

The use of dematerialization and DEMAT account is comparable to using a bank and bank accounts to maintain one’s assets rather than personally storing and exchanging paper money each time a transaction is made.

Using a debit card at a store creates a digital record of a purchase and the amount is deducted from the cardholder’s account automatically. Basically, funds are exchanged between buyer and seller without paper currency.

Likewise, with dematerialization, the stock transactions are completed without any kind of physical certificates. Through dematerialization, the DEMAT accounts allow for electronic transactions when shares of stock are bought and sold.

Within a DEMAT account, the certificates for stocks and other securities of the user are held as a means for seamless trades to be made.

How to open Demat account?

If you wish to open a Demat account, you must always get it done by a depository participant (DP), which could be either your bank or your stockbroker.

You just need to fill a form and submit copies of proof of address and identity documents (PAN card, Aadhar card, passport), along with a passport - size photograph.

After processing the document, the participant will open a Demat account in your name, with also an account number of your own.

The Demat account is just like an ordinary bank account, keeping a record of your shares instead of your money.

Some broker helps you open a Demat account online (through internet). In order to do so, you must submit scanned copies of all the needed documents.  Also, in-person verification is done later using online video chat.

Demat account: The process

Dematerialisation or Demat is the process through which an investor’s hard copy of the certificate gets converted to an electronic format. This electronic format helps maintain the data easily and make it secure. This is later maintained in a separate account with the Depository Participant. 

DEMAT accounts are required by some trading institutions due to the fact that they are the most accurate form of record keeping. Dematerialization was made to offer more security, as well as increased speed, to financial trades. It has become the norm in bookkeeping for financial institutions.

Dematerialization theory applies not only to stocks, but also to other forms of investment such as shares, bonds, mutual funds, and government securities.

The use of dematerialization and DEMAT accounts is comparable to using a bank and bank accounts to maintain one’s assets rather than personally storing and exchanging paper money each time a transaction is done.

How does Demat benefit a company?

Companies that offer shares electronically are able to maintain a more transparent and excellent trading system by enabling easy and simple transfer of shares.

Online trading using a Demat account eliminates the need for any paper work, thus helping from both an administrative and of course environment point of view.

Demat account helps in cutting down costs related to printing and distribution of shares to investors. The company is able to communicate with the shareholders without any loss of time, energy and efforts.

How does Demat benefit brokers?

Now-a-days brokers are able to provide more satisfactory services because the risk factor gets restricted. Risks like theft, forgery and other things get minimized. The huge amount of interest, liking and active participation in trading by investors increases the earning capacity and profits of any mediator or financial advisor.

The fast and simple transfer of Demat shares helps build confidence and trust among investors. Thus increasing the level of commitment they put in the brokerage service.

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Created on Sep 3rd 2019 00:33. Viewed 271 times.

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