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What is a Demat Account

A Demat Account refers to a dematerialised account for individuals to trade stocks in electronic form rather than paper. Demat is what allows for shares to be traded electronically. In a demat account, shares are held electronically instead of the investor having to take physical possession of certificates of the stock. It can be opened by an investor while registering with a broker. A demat account is required if a trader is looking to do delivery trading since it is required for delivery of shares.

The benefits of demat are 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 ets 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).

 

 

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