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Dematerialisation Demat Account: Features, Benefits, Demerits

Demat is the short for Dematerialisation.

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 of a company in electronic form."

Where to open a Demat Account?

In order to demat your physical share certificates, you have to open a demat account with a 'Depository Participant'.

Depository Participants will have to register with SEBI through depositories, i.e. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

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

Example of Depository Participants (with whom you can open demat account)

• Sharekhan Limited
• Kotak Securities Limited
• Karvy Stock Broking Limited
• Motilal Oswal Financial Services Limited
• ICICI Securities Limited
• Zerodha Securities Private Limited

Rights available to the shareholders holding shares in Demat form

• To receive notice and explanatory statements of general meetings;
• To participate at general meetings and vote either personally or through proxy;
• To receive Postal Ballots forms along with notice;
• 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 and bonus shares, if declared and approved.

And many other rights equally as enjoyed by the shareholders holding shares in physical form. 

Benefits/ Advantages of holding shares in Demat form

• Elimination of risks associated with physical certificates i.e. 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 the order of names in joint holding, bank mandates etc becomes easier through submission of forms to the depository directly. Depository participant's 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.

Demerits/ Disadvantages/ Drawbacks of holding shares in Demat form

• High cost of maintaining the demat account i.e. brokerages, annual maintenance charges, etc;
• Inability to operate online demat and trading account due to lack of digital promptness;
• Capital market regulatory bodies will keep a close watch on your trading activities;
• Chances of online fraud as everything is in electronic form;
• Lack of control over the account if you have hired broker and chances of losing money for his poor decisions;
• Trading may become a gambling habit if you start trading everyday, which increases your chances to gain and lose as well;
• Closure of demat account is not possible if it still has shares balance, which are not saleable because of different reasons. And, you unnecessarily keep on paying account maintenance charges.