DEMAT ACCOUNT use for electronic storing, 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
Benefits of Demat Account
Easy and convenient way to hold 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 Depository participant (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
Traders can work from anywhere (e.g. even from home).
Benefit to the company
The depository system helps in reducing the cost of new issues due to lower printing and distribution costs.
It increases the efficiency of the registrars and transfer agents and the secretarial department of a company.
It provides better facilities for communication and timely service to shareholders and investors.
Benefit to the investor
The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc.
It ensures transfer settlements and reduces delay in registration of shares.
It ensures faster communication to investors.
It helps avoid bad delivery problems due to signature differences, etc.
It ensures faster payment on sale of shares.
No stamp duty is paid on transfer of shares.
It provides more acceptability and liquidity of securities.
Benefits to brokers
It reduces risks of delayed settlement.
It ensures greater profit due to increase in volume of trading.
It eliminates chances of forgery or bad delivery.
It increases confidence in their investors.
Depository Participant (DP)
A depository (in simple terms) is an institution holding a pool of pre-verified shares held in electronic mode that offers efficient settlement of transactions. A Depository Participant (DP) is an intermediary between the investor and the depository. A DP is typically a financial organization like a bank, broker, financial institution, or custodian acting as an agent of the depository to make its services available to the investors. Each DP is assigned a unique identification number known as DP-ID.
Documents required for Demat account
To open a Demat account you have to provide documents which fulfill the requirements of KYC (Know Your Customer) norms. You have to sign a contract with Stock broker. Generally the documents are:
PAN (compulsory)
Address proof
Aadhar Card
Two colour photos
Bank crossed cheque