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6.1

Features & Advantages of a Demat Account

A Demat account is similar to a bank account with the difference being that instead of money, it is the securities that have been deposited in electronic form. Securities are in the form of shares, bonds or debentures. As per the Depository Act, 1996, Demat Accounts are mandatory if you have more than 500 units in securities.

When opening a Demat account where physical securities are converted to electronic form, one may have a lot of questions in mind about the features and benefits of such accounts as well as the charges applicable. Well, let’s address these three fronts to bring about some clarity.

Features of a Demat Account?

Transfer of shares – To transfer shares, an Investor has to fill up Delivery Instruction Slip (DIS) or Receipt Instruction Slip (RIS), to sell or buy securities. These are equivalent to cheque books and contain all the detailed instructions for the transaction to take place smoothly.

Dematerialization and Rematerialization of Securities – Dematerialized securities are securities that are not on paper and a certificate to that effect does not exist. A Bank or any other Depository Participant where one has a Demat account can easily convert securities into electronic or physical form on request, with the submission of a Demat Request Form and a Remat Request Form respectively. Dematerialization refers to the conversion of securities into electronic form and conversion of electronic form securities into physical form is called Rematerialization.

Hypothecation for Loans – Investors can take a loan against securities (shares, debentures, bonds, mutual fund units) that are held in their Demat accounts. The securities are offered as collateral to the lender by the borrower.

Freezing a Demat Account - As per the need or preference, an investor can freeze his account for a specific time period. Freezing of Demat accounts is a good option if one does not want any unexpected debits or credits in the account. Moreover, it can also be used for a specific quantity of shares on the account.

Various modes of access - Since Demat accounts are electronic in nature; one can access their Demat account via the internet through smartphone or personal computer

SPEED-e facility – Made available by NSDL, this facility allows instruction slips to be sent electronically instead of submitting paper slips to the Depository Participant. The Depositary Participants are the agents governed by Depositories through which one can operate the Demat account.

What are the Benefits?

  • It is an easy and convenient mode to hold securities with reduced brokerage fee
  • The risks of misplacing the physical certificates or that of thefts, fake securities or time delays are reduced since Demat accounts are electronic as opposed to the old paper based system
  • There is no stamp duty involved in transferring of securities since they are being held in electronic form
  • Since the Depositary Participants are enlisted by either National Securities Depository Limited or Central Securities Depository Limited and are core-linked, any change made with a Depositary Participant is updated with the Depository as well as other Depository Participants.
  • There are no restrictions on transactions. As a Demat account holder, one can sell or buy even a single share, which is not possible if the securities are in physical form. This is because; physical shares are stacked together collectively whereas Demat shares are easily divisible electronically. This is akin to being able to pay a single paisa online via net banking despite not having a physical one paisa coin with you.

 

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