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Demat Account - Features, Benefits & Disadvanatages

What is Dematerialisation (Demat)?

Dematerialisation is the process wherein the shares held in physical form are cancelled / destroyed and thereafter the ownership thereof is entered into and retained in fungible form in electronic mode with a Depository.

"In short, demat is a way of holding of shares in electronic form."

There are currently only two depositories operating in India.
(1) National Securities Depository Limited (NSDL)
(2) Central Depository Services (India) Limited (CDSL).

Securities and Exchange Board of India (SEBI) is the regulating authority for demat operations.

Following Rights are also available to the shareholders holding shares in Demat form
  • To receive notice and explanatory statements of general meetings.
  • To participate and vote at general meetings either personally or through proxy.
  • To receive Postal Ballots forms along with notice etc.
  • To receive Annual Reports or any other periodical reports.
  • To inspect statutory registers and documents during the working hours fixed by the Company.
  • To demand poll on any resolution at general meetings.
  • To receive dividends, if any, as approved.
  • To receive rights shares, bonus shares, etc. if declared and approved.
  • And many other rights equally as enjoyed by the shareholder holding shares in physical form.

Advantages of holding shares in Demat
  • Elimination of risks associated with physical certificates viz. torn and defaced
  • Elimination of bad deliveries of share certificates.
  • No Stamp duty payable on transfer of shares through demat accounts.
  • Faster way of trading and transfer of shares including fast settlement cycle.
  • Pledging of shares /transmission becomes easier and faster to conclude.
  • Online platform to check and monitor status.
  • Balance statements including pending are received in email automatically through system - monitoring becomes strong.
  • Changing address, name, nomination, transposition-changing order of names in joint holding, bank mandates etc becomes easier through submission of forms to the depository directly. Depository branches are available more in numbers.
  • Easier and faster disbursement of rights shares, bonus shares, etc.
  • Subscribing to IPO through demat and trading account is much easier than through manual way.

It is always advisable to hold the shares in demat form rather than holding it in physical form due to its several benefits as described above and for its transparent way of management and monitoring.
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