What is Demat Account?
Before 1996, Indian investors held their shares and securities in physically, in the form of Certificates. After that, it was the beginning of a new era of paperless trading, where-in instead of the investor taking physical possession of certificates; it was stored or held in an electronic form in a Dematerialized (or Demat) account.
The Demat account can be opened by the investor while registering with an investment broker (or sub-broker) and this Demat account no. can quoted for all transactions to enable electronic settlements of trades to take place. On opening the account, internet password and a transaction password is given for the transfers or purchases of securities.
When an investor buys a share today, it gets credited to the investor’s demat account in just 2 days.
Benefits and Advantages of Demat
Easy and convenient way to hold securities.
Safe and Immediate transfer of securities with reduced paper work.
No stamp duty on transfer of securities and reduced transaction cost.
Automatic credit into demat account for shares arising out of benefits like bonus, Rights issue, split, merger, etc.
A Trader can work from anywhere (e.g. even from home) and a single demat account can hold investments in both equity and debt instruments.
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.
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.
Disadvantages of Demat
There is no provision to close a Demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges etc.
After liquidating the holdings, many Indian investors don’t close their DP account.They are unaware that DPs charge even on dormant accounts.
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
1. PAN (Compulsory).
2. Aadhar Card.
3. Bank statement (last 3 months).
4. Address Proof. 5. Two colour photos.
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