The capital market has witnessed a gradual rise in investors, with the youth diving into trading and investing. With the advent of digitalisation, investing in securities has never been easier. The most important aspect of this movement has been Dematerialisation. It is a process by which individuals can convert their physical shares and securities to a digital format. A Demat Account stores these digital securities.
Securities can be in the form of Mutual Fund units, government securities or stocks of a company. A registered Depository Participant (DP) holds the security. A DP is an agent of the registered Depository. This agent provides depository services to investors and traders.
Two depository bodies are registered with the Securities and Exchange Board of India (SEBI) for Dematerialisation.
Read more about depository participants and their role here.
The process of Dematerialisation is straightforward for the investor. Follow the steps below for the Dematerialisation of shares and securities:
It is essential to know that a Demat Account only holds your securities. You will also need a trading account linked to your Demat account to trade securities. Follow the steps given below to buy securities using your Demat Account:
Dematerialisation comes with multiple benefits that make trading convenient for you. Some of the benefits are detailed below:
Owning physical shares poses risks such as theft, forgery, and damage, which can result in financial loss or legal issues. Dematerialisation eliminates these risks by converting physical share certificates into electronic form. This electronic format ensures your assets are safe and less vulnerable to loss or tampering.
Transferring physical share certificates involves stamp duty, a government tax levied on the documentation of transactions. However, with dematerialised shares, the transfer process is electronic and paperless, thus exempting you from stamp duty charges.
With physical shares, managing and transferring ownership involves extensive paperwork, including issuing and handling certificates, filling forms, and record-keeping. Dematerialisation simplifies this by converting all documentation into electronic records. This paperwork reduction streamlines the process and reduces the risk of errors and administrative hassle associated with physical share management.
Dematerialisation enhances trading efficiency and liquidity by allowing faster and more frequent transactions. This increased trading volume benefits market dynamics by promoting greater liquidity and enabling higher market participation from both individual and institutional investors.
Electronic trading through Demat accounts ensures that all transactions are recorded and monitored digitally, improving transparency in the trading process. This further ensures accurate settlement of trades.
Click here to learn more about applying for a Demat Account at HDFC Bank.
*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action.