Share Market

Demat or dematerialised account is for individual citizens to trade in listed stocks or debentures, required for investors by The Securities Exchange Board of India (SEBI). For example, you open an account in a bank if you want to save money. Likewise you open a demat account if you want to buy or sell stocks. Thus a demat account is a bank account for shares.

Shares and securities in the demat account are held electronically instead of the investor taking physical possession of certificates. It is opened by the investor while registering with an investment broker or sub broker. The Demat account number is quoted for all transactions while making electronic settlements of trades.

Access to the Demat account requires passwords of internet and transaction. Only then can the transfers or purchases of securities can be initiated. Once transactions are confirmed and completed, purchases and sales of securities on the Demat account are automatically made.

A Demat account has many advantages like- it reduces brokerage charges, makes pledging or hypothecation of shares easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments or IPOs

It also helps in avoiding problems that are associated with physical share certificates. It eliminates risks that are associated with forgery and the loss that is caused due to damaged stock certificates. Demat account holders also avoid stamp and filling up of transfer deeds. Demat account holders usually obtain quicker receipt of benefits like stock splits and bonuses.

The system of Demat was adopted basically for electronic bookkeeping. This is where the shares and securities are represented and maintained electronically, eliminating the pain associated with paper shares. After the introduction of the depository system by the Depository Act in 1996, the process of shares (sale, purchase and transfer) became much easier. Also most of the risks associated with paper certificates were blown away.

There are hundreds of Depository Participants (DPs) offering the Demat account facility in India since Sept, 2011. Another point to note down is that there is a fee that is levied on a demat account holder. They are majorly 4 major types: account opening fee, annual maintenance fee, custodian fee and the transaction fee. These charges for all fees however vary from Depositary participants to depositary participants.