In India, shares and securities are held electronically in a dematerialized (or "Demat") (/dimæt/
account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transacting shares.
Access to the Dematerialized 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 Dematerialized account are automatically made once transactions are confirmed and completed.
Advantages of demat
The bonus/right shares allotted to the investor will be immediately credited into his account.There is no risk due to loss on account of fire, theft or mutilation. Transaction costs are usually lower than that in the physical segment. 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. The biggest advantage of having demat account is that you don't have to pay for stamp since these are electronically stored which reduces the transaction cost.
Demat benefits
Demat account for shares and securities with Business purpose
The benefits of demat are enumerated[by whom?] 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 Depository participantDP gets registered with all companies in which investor holds securities eliminating the needto 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.