Demat & Treading

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). In a demat account, shares and securities are held electronically instead of the investor taking physical possession of certificates.
What is Demat & Treading Account??

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.

The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being removed and retired from circulation in exchange for electronic recording.

With the age of computers and the Depository Trust Company, securities no longer need to be in certificate form. They can be registered and transferred electronically.

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.

Demat benefits

The benefits of demat are enumerated 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 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 overall trading and profitability. It increases confidence in their investors.

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