Just like internet banking made our life simpler, the introduction of dematerlisation concept for securities has solved many problems of Indian Investors and as well as the brokers. There are many advantages and disadvantages of demat account and it all depends upon how the investor/trader adapts to it. The term “Demat account” (full form:”de-material”) refers to the account used for holding the shares of the companies in electronic form instead of physical certificates. In India, it is mandatory to have demat account to trade in the stock markets. It is worthwhile to understand some of the features of demat account and how it is beneficial compared to practices of olden days.
Advantages of Demat Account:
There are many pros of having demat account.
* The biggest being, you can sleep peacefully at night without worrying too much about loosing the certificates due to theft or damage due to fire, flood or in worst case forgery of them without your knowledge
* In earlier times, if you wanted to transfer the shares to you dear one, you were supposed to contact registrar of each company. Imagine if you had 10 shares each of 30 companies!. But Demat has made it easy, you just need to conact your broker and give appropriate instructions for transfer and you are done!.
* Do you want to sell one share of SBI?, no issues, you can do that with demat account. But it was not the case with physical securities, wherein you were expected to sell in lots of 50,100 etc (Reason was simple, your broker did not have time to deal with miniscule amount)
* Suppose the company in which you have invested issues the bonus shares, it will be reflected immediately in your demat account. People used to wait for months to receive them through the post in earlier time.
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* Is your contact address changed? then simply contact your broker(dp) and update it. No need to write to registrar of each and every company,
* There is general feeling in India that, demat account is only for holding the shares of companies. It is not so. One can keep bonds, mutual funds or gold ETFs on NSE/BSE along with shares in a single demat account.
* There is no stamp duty on transfer of shares which reduces the transaction costs
* This reason can be considered advantageous or disadvantageous : When you hold shares in physical form, emotionally it becomes difficult to sell them. But through demat account, you can sell them with just click of mouse button!
So if you have some old certificates lying at your house, may be inherited from your ancestors, it is always advisable to dematerialize them. Contact your DP and surrender the shares and your DP will coordinate with NSDL or CDSL to credit them to your demat account.
Disadvantages of Demat Account:
Demat has some cons also, similar to internet banking. If one does not understand them, he may end up paying for the ignorance
* Internet banking user are susceptible to lot of phishing and fraudulent activities. similarly, investor who are not very tech savvy, have to entirely depend upon somebody else and in most of the cases it will be the brokers. And we have seen many brokers misusing the trust of their customers and barred by SEBI.
* And Demat account does not come free of cost. Your broker will charge you yearly maintenance fees and it varies from broker to broker.
* The charges are levied, even if you are not holding a single share!. People normally don’t bother to close the account if they don’t have any plan to operate it and it becomes dormant for years. But at the end, he or his successors end up paying the fees with interest!
It is also possible to convert the shares in the electronic form back again to physical form. This process is called Rematerialisation and for this you need to contact your DP and submit the request. The physical certificates will be dispatched to your contact address.
Also Read: Details of Top 10 Indian Brokerage Companies
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