Demat Account

Topics: Stock market, Stock exchange, Stock Pages: 11 (3364 words) Published: December 13, 2012
Demat account
The term "demat", in India, refers to a dematerialised account for individual Indian citizens to trade in listed stocks or debentures in electronic form rather than paper, as required for investors by the Securities and Exchange Board of India (SEBI).[1] In a demat account, shares and securities are held electronically instead of the investor taking physical possession of certificates. A demat account is opened by the investor while registering with an investment broker (or sub-broker). The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Access to the demat account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the demat account are automatically made once transactions are confirmed and completed.

Advantages of demat
A demat account also helps avoid problems typically associated with physical share certificates, for example: delivery failures caused by signature mismatch, postal delays and loss of certificate during transit. Further, it eliminates the risks associated with forgery and due to damaged stock certificates. Demat account holders also avoid stamp duty (as against 0.5 per cent payable on physical shares) and filling up of transfer deeds. Demat account holders usually obtain quicker receipts of benefits like stock splits and bonuses. The other advantage is the ability to access stocks, bonds, ETFs, IPO, Gold ETF, etc. all in one place. Its like one centralized investment account from where you can access and maintain investment products. -------------------------------------------------

[edit]Indian market scenario
The capital market in India has seen an unprecedented boom in the last 15 years, in terms of number of stock exchanges, listed companies, trade volumes, market intermediaries, and investor population. However, this surge in activity created many initial problems to the large volumes of paperwork. Large volumes of trading, clearing and settlements using only paper-based instruments were beset with problems that threatened the very survival of World's capital market. -------------------------------------------------

[edit]Goal of Demats System
India adopted the Demat System for electronic bookkeeping, wherein shares and securities are represented and maintained electronically, thus eliminating the troubles associated with paper shares. After the introduction of the depository system by the Depository Act of 1996, the process for sales, purchases and transfers of shares became significantly easier and most of the risks associated with paper certificates were mitigated. -------------------------------------------------

[edit]Demat benefits
The benefits of demat are enumerated[by whom?] as follows:
* Easy and convenient way to hold securities
* Immediate transfer of securities
* No stamp duty on transfer of securities
* Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated) * Reduced paperwork for transfer of securities

* Reduced transaction cost
* No "odd lot" problem: even one share can be sold
* Change in address recorded with a DP gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them separately. * Transmission of securities is done by DP, eliminating the need for notifying companies. * Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc. * A single demat account can hold investments in both equity and debt instruments. * Traders can work from anywhere (e.g. even from home).

Benefit to the company
The depository system helps in reducing the cost of new...
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