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A Demat account (short for Dematerialized account) is an account to hold financial securities (equity or debt) in electronic form. In India, Demat accounts are maintained by two depository organisations, National Securities Depository Limited and Central Depository Services Limited. A depository participant, such as a bank, acts as an intermediary between the investor and the depository.
Demat account for shares and securities with business purpose
The benefits of Demat account are as follows:
Easy and convenient way to hold securities
Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
Reduced paperwork for transfer of securities
Reduced transaction cost
No “odd lot” problem: even one share can be sold
Change in address recorded with a depository participant gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them separately.
Transmission of securities is done by the depository participant, eliminating the need for notifying companies.
Automatic credit into Demat account for shares arising out of bonus/split, consolidation/merger, etc.
A single Demat account can hold investments in both equity and debt instruments.
Traders can work from anywhere (e.g. even from home).
Benefits to the company
The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for communication and timely service to shareholders and investors.
Benefit to the investor
The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.
Benefits to brokers
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery or bad delivery. It increases overall trading and profitability. It increases confidence in their investors.