Unlike in the past in India, when physical possession of share certificates was required, today the shares & securities are held in electronic form or dematerialised form. This is also known as DEMAT account. It is mandatory to have a demat account for all traders. This in turn enables electronic settlement of all trades taking place.
The Demat account is opened at the time of opening of trading account with any broker. Nowadays banks also support in proving the Demat account alongwith opening of savings or salary accounts. Demat accounts are operated with utmost security i.e. protected by transaction password.
Maintaining of physical or paper form of share certificates was a tedious and risky affair. The depository system was introduced by Depository Act of 1996. After this NSE started trading based on the electronic form of storage or Demat system. Once the shares are bought, they get transferred in just 2 days in the investors Demat account.
1. Immediate and effortless credit of right or/and bonus shares in the investors Demat account.
2. Paperless holding and transfers reduces the risk of theft, forgery, fire and damage caused to paper form of certificates.
3. Savings on stamp duty as all stamps are in electronic format only.
4. Saving on transaction costs too.
The investor’s confidence gets a boost which in turn increases the volumes and hence resulting in profitability. Chances of forgery/bad delivery also come down drastically.
Efficiency of registrar and other staff increases due to fast movement. The system also reduces cost to the company.
* Fast, easy & a safe way to hold securities.
* Economical transactions & holding costs.
* Paperless system, good for enviornent.
* Odd lot issues solved as even one share can be traded.
* Single Demat account can be used for equity & debt.
There are certain disadvantages of the system which may be uncontrolled trading in the dematerialised securities. Monitoring of dematerialised securities is not possible all the time. Many stages of regulatory framework such as bye-laws, regulatory body and other acts. Some investors do not close their DP accounts even after it is dormant for long. They are unawre that annual charges are still being levied on the account.
1. PAN CARD
2. AADHAR CARD
3. BANK STATEMENT
4. ADDRESS PROOF
5. IT RETURNS
There is a great amount of competition available due to number of Depository participants or DP’s.