A Demat account is an account to hold investment and financial securities in electronic form. In India, Demat accounts are regulated by two government appointed depository organisations, National Securities Depository Limited and Central Depository Services Limited. While SEBI, The Securities and Exchange Board of India, is the authority and the principal regulator for Stock Exchanges in India. SEBI’s core functions include verifying companies, securing investments, protecting investor interests, promoting and regulating the Indian securities markets.
India adopted electronic depository system after introduction of the Depository Act of 1996. The cumbersome process of identifying stocks, trading, sales, purchases and transfers of shares became significantly easier and most of the corrupt practices and risks associated with paper certificates were immediately mitigated.
Benefits of Indian Demat Accounts
Let us check benefits of Demat accounts for trader, company, investor and stock broker. Most of the benefits overlap due to efficacy of electronic transactions. Stock broker also help in opening demat account.
Benefits of Demat Accounts for Traders
Demat account is usually opened for shares and securities to keep track on investments made in portfolios.
The benefits of Demat account are as follows:
- Secure: Simple and comfortable to hold securities
- Ease of use: Easy and convenient way to allocate stocks
- Clutter free: Safer than paper-shares. There are huge risks associated with paper certificates such as forgery, delays, thefts, bad delivery and fake securities. Corrupt practices are arrested in online Demat accounts.
- Quick transfer: Reduced paperwork help fast transfer of securities
- Cost deduction: Less paper work. Almost no manpower involved in front end processing reduces transaction cost drastically.
- No legacy “odd lot” problem: There is no limit to number of shares, it is so simplified that even single share can be sold.
- Change of location: It is easy to update personal records and change of address in case of migration. One entry with a depository participant gets reflected and registered with all companies in which investor holds securities.
- Zero notification: Almost no requirement of notifying different companies. Transmission of securities is managed by the depository participant, eliminating the need for notifying individual companies.
- Fast credit: No delay in credit of money. Automatic transaction into Demat account including all types of stocks, bonus, splits, sells, consolidation and mergers.
- One stop solution: A single Demat account is allowed to hold investments in both equity and debt bonds or mortgages.
- No commutation: Traders do not have to travel and can operate even from home.
Benefit of Demat Accounts to the Company
The electronic depository system reduces expenses of new issues due to low requirement of printing and distribution costs. Overviewing transactions become easy so it increases the efficiency of the registrars, agents and the secretariats of a company. The company can communicate quickly offering timely delivery of service to investors, traders and brokers.
Benefit to the Investor
The electronic depository system reduces high risks involved in paper certificates e.g. fake, loss, delay, theft and wrong issuance. It enables easy transfer of securities and quickens the registration process of shares. It offers faster communication to investors. Buying and selling is quick compared to physical certificates. It saves money as no stamp duty is paid on transfer of shares.
Benefits to Broker
Brokers have more time to handle customers than get involved in risks of delayed settlement. High volume of trading ensure better profit for brokers. More investment opportunities is offered to the traders. No manual intervention in allocation of shares eliminates any possibility of forgery and wrong delivery. The faster transaction enhances trading flexibility and overall profit for brokers. Transparency of the process builds confidence in investors and traders this directly helps brokers. You can download online trading app here.