Demat Account

We can understand what a Demat account means by comparing it to a bank account. People usually open a savings account to have easy access to their funds and keep them safe from mishandling and theft. In a similar sense, a Demat account does the same for investors by keeping their shares and securities safe in electronic form. If you want to invest in stocks, a Demat account is a prerequisite. The National Securities Depository Limited and Central Depository Securities Limited are two main depositories registered under the Indian government and hold securities in electronic form.

Demat Account: Meaning

It is also called a dematerialised account. Dematerialisation is converting physical shares and securities certificates into electronic forms. The main reason for converting them into electronic form is because they are easy to manage and accessible from anywhere in the world. This digitalisation of trade had made the entire process more accessible than before, as the share certificate issuance process was very time-consuming. With the help of the Demat account, this whole process is sped up, and it stores security certificates in digital format. 

While doing trade online, the shares and securities that you buy are held in your Demat account. All the investments that you make in shares, government securities, exchange-traded funds, bonds, and mutual funds are stored in one place in a digital format using a Demat account. The digitisation process of the Indian stock trading was effectively enabled by Demat, and it was governed by the Securities and Exchange Board of India. Demat is also beneficial as it has reduced the threat of theft, risks, malpractices and damage by storing securities in a digital or electronic form. 

What is a Depository Participant?

The job of a depository participant is very similar to that of a bank or broking firm. When new investors start trading in the stock market, they need a depository participant to create a Demat account. They are like agents but for depositories like the National Securities Depository Limited and the Central Depository Securities Limited. They are licensed to function as a depository under the Depositories Act, 1996. When an investor or trader buys a share online, the shares are held in their Demat account with their depository participant. 

Still, one thing to remember here is that the investor will remain the only beneficiary owner of the shares. The depository participant needs to credit or debit the Demat account whenever a share or kind of security is bought or sold. Some other services which a depository participant offers are:

• Pledge or unpledged shares
• Dematerialisation of securities
• Rematerialisation of securities
• Keeping a record of securities in Demat form, meaning in electronic form
• Trade settlement
• Off-market transaction
• Freezing of the Demat account
• Facilitating loans against the bought shares

Advantages of Demat Account

Here are some advantages of opening a Demat account:

• When the securities are being transferred, there is no stamp duty

• There is a faster and more immediate transfer of securities

• The elimination of wrong deliveries is seen

• The elimination of risk by loss, theft, damage, mutilation, etc. is seen

• They benefit us with the disbursement of corporate benefits like rights, dividends, bonuses, etc. and faster settlement

• Elimination of personal information mismatches like bank accounts and addresses

• The nomination facilities are more convenient

• In the case of the death of a Demat account holder, the transmission formalities are done more conveniently

• There is no TDS deduction, meaning tax deduction, which is deducted at the source for Demat securities

• The account information and statement of the Demat A/c are regularly sent to the account owner

Conclusion 

We study Demat accounts in business studies to understand the dynamics of online securities trading. A Demat account is opened when physical securities certificates are converted into electronic or digital securities certificates. It can be accessed from any corner of the Earth. Those willing to start trading and investing need to open a Demat account with a depository participant. This depository participant is not an owner of securities bought, but they charge fees for their services like opening an account, transferring shares, pledges of claims, etc.