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Informative Report On Demat Account

It’s a common perception that investors are often overloaded with endless reams of share certificates. But there has been a steady move towards paperless trading over the last two decades.
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  • 02 Feb 2023
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The Securities and Exchange Board of India (SEBI) has prohibited any transaction for the transfer of securities of listed companies in the form of physical certificates. This has become effective from 5 December 2018. So, investors now need to have a demat account to continue trading.

But what exactly is a demat account? And how does trading through such an account differ from trading through the use of physical share certificates? You can get your answers from this informative report of demat accounts.

Read more: How to open a demat account

‘Demat’ is an abbreviation of the term ‘dematerialised account’. This type of account holds shares and securities in the electronic form. So, investors can buy and sell stock market shares through a demat account without physical share certificates.

Here are the objectives of holding a demat account:

  • To enable share trading: It’s compulsory to have a demat account for buying and selling securities of listed companies either on the stock market or as off-market transactions.
  • To make share transfers simpler: The demat account has made transfers and transactions far more simple and efficient. It has sped up the entire process of trading.
  • To eliminate forgeries and theft: Use of physical share certificates carries the high risk of forgeries and theft. Even the trail of transactions and transfers can be quite difficult to trace. Demat accounts, however, establishes a clear record of transfers and transactions, making it far safer than physical shares. Read more: Documents required for a demat account

This informative report on demat accounts showcases the following advantages of a demat account:

  • Convenient form of holding securities: It’s not unheard of that investors have lost or misplaced their physical share certificates. The physical movement of such certificates to and from the registrars leaves them vulnerable to loss, theft, or damage. Using a demat account eliminates the need to send physical shares to the registrars.
  • Transfers are expedited: The transfer of physical share certificate was cumbersome and time-consuming. Electronic transfers are quick and can take place within hours.
  • No stamp duty: Physical share certificates require investors to buy and use share transfer stamps. This requirement was an added burden in terms of time, money, and effort for investors. Demat accounts effectively remove this burden for investors.
  • Reduced documentation and costs: Having all the information in electronic form has reduced a massive amount of documentation. This has also reduced costs for investors.
  • No minimum limit: With demat accounts, you can sell even a single share without any hassle. Earlier, investors could not sell physical shares in odd lots. But, there are no such restrictions with the demat format.
  • Safer: Transfer of shares through a demat account is far safer than physical shares. Investors can rest easier than before as electronic transfers have eliminated the threats of forgery.

The disadvantages of demat accounts are as follows:

  • Key stockbrokers and players in dematerialized securities should be supervised to see that they do not manipulate the market.
  • Multiple regulations as set up by the Depositories Act, along with other regulations and by-laws of depositories, must be followed.
  • The market regulator must ensure that trading through a demat account does not become a detriment to the investor.

Read more: Uses of a demat account

India has two depositories— the Central Depository Services Limited (CDSL) and the National Securities Depositories Limited (NSDL). Depository participants hold shares through these depositories. When investors transfer shares, the respective depository participant debits or credits the their demat accounts.

  • Choose a depository participant and fill out a demat account opening form
  • Submit the required documents
  • A person from the depository participant will contact you for verification.
  • Once your application has been approved, the depository participant will provide you with a demat account number and [client ID]

Conclusion

If you are interested in investing, it’s now imperative to have a demat account. You must not feel intimidated by the new system—it is far simpler and safer than ever before. Do not delay and open a demat account today to enjoy the associated advantages.

Read more:Best demat account

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