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Benefits and Advantages of a Demat Account

Benefits and Advantages of a Demat Account

A Demat account is a digital platform for holding your shares. It is equivalent of a bank account for your stocks and shares. Just as you keep your money in your bank account, you can keep shares and stocks in your demat account.

The benefits or advantages of demat accounts largely stem from the risks and pitfalls of the physical ownership system. The entire trading activity in India has become a lot simpler and more foolproof as a result of demat accounts. From an investor’s point of view, the following are the key advantages of having a demat account…

  • Overcomes physical delivery risk: Demat overcomes the typical risks of physical delivery. In the physical settlement format, the shares had to be held in paper form and physically sent to the company’s registrar for transfer of ownership. This created a lot of logistical problems. Share certificates were either lost or misplaced in transit. At times, certificates reached in damaged condition and hence were rejected. These problems are resolved by demat.
  • No bad delivery worries: Very importantly, demat overcomes the problem of bad delivery. Under the physical settlement most brokers had a dedicated team working on bad deliveries. These deliveries could happen for different reasons like signature mismatch, name order mismatch, name wrongly spelt in the share certificate, incomplete details in the transfer form etc. Demat account overcomes all these problems.
  • Automatic corporation action credits: Corporate actions like bonus, splits and even dividend payments have become a lot simpler under demat. The bonus shares and the split shares are automatically credited to your demat account if your name appears on the record date. Even dividends are automatically credited to your bank account. That is a big relief for investors.
  • One-Point contact point: Interfacing with the companies becomes a lot simpler under the dmat account arrangement. If you were having investments in 8 companies in a physical form, then a change of address will have to be individually intimated to the registrars of each of these companies. Demat solves that problem. You just write once to your depository participant and the details of your changed address are automatically downloaded to all your investments. It is as simple as that.
  • No more odd lot worries: Demat addresses the odd-lot problem which used to be a major hassle in physical certificates. You could buy and sell shares only in specific lots of 50 or 100 shares. In case of high priced shares, the odd-lot requirement kept most of the small investors out of its ambit. In the demat system, you can even buy or sell just 1 share of the company. From the standpoint of a small investor, demat is a lot friendlier.
  • It’s cost effective too: Demat is a lot more cost effective from the point of view of the company, the broker and the investor. Since there are no physical shares involved, demat is free of stamp duty. That reduces the cost to the investor. The reduced paperwork is a major cost saving for the companies. With bad deliveries almost eliminated post-demat, brokers are able to put their manpower to much better use.
  • No risk of duplicates: Physical shares had a major problem of duplicate share certificates floating around in the market. Back in 1994, this problem became an issue even for a large company like Reliance Industries. However, demat almost entirely eliminates the risk of duplicate ownership as there is a centralized digital record which cannot be duplicated.
  • Seamless online experience: When demat combines with internet banking and online trading, it creates one large and seamless chain of transactions that is simple, quick and efficient. The buy transaction in your trading account, the debit from your bank account and the subsequent credit to your demat account happens seamlessly without any efforts from your side. Same is the case when you sell shares.
  • Last but not the least, demat has made a big difference to IPO investment. With shares being directly credited into your demat account on allotment, the shares are now available for selling from the day of listing itself. That facility was not available under the physical certificate system.

In short, demat accounts have made your entire portfolio of investments available to you on your smart phone. You can operate from anywhere and at any time apart from the other benefits of demat account!

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"Prevent Unauthorized transactions in your Trading/Demat Account --> Update your mobile numbers/email IDs with your stock brokers/Depository Participant. Receive alerts/information of your transaction/all debit and other important transactions in your Trading/ Demat Account directly from Exchange/CDSL at the end of the day .......... Issued in the interest of investors." | "KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary." | "No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorize your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account." |"Investment in Securities Market/Commodity Market is subject to Market Risk. | RGESS investors kindly download New Retail Investor Certificate from link - https://www.cdslindia.com/investors/rgessverification.aspx | Dear Investor kindly update Aadhar Number with your demat account, contact your nearest branch."
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