Tuesday, August 23, 2011

Demat Account

Demat refers to a dematerialised account. Demat account is just like a bank account where actual money is replaced by shares. Just as a bank account is required if we want to save money or make cheque payments, we need to open a demat account in order to buy or sell shares. A Demat Account holds portfolio of shares in electronic form and obviates the need to hold shares in physical form. The account offers a secure and convenient way to keep track of shares and investments without the hassle of handling physical documents that get mutilated or lost in transit. The Securities and Exchange Board of India (SEBI) mandates a demat account for share trading involving more than 500 shares.

Benefits of Demat Account
  • Eliminates risks associated with physical certificates such as bad delivery, fake securities, delays, forgery, counterfeiting, thefts and loss due to fire.
  • Reduces brokerage charges
  • Pledging/Hypothecation of shares is easier
  • Enables quick ownership of securities on settlement thereby resulting in increased liquidity
  • Reduction in paperwork involved in transfer of securities
  • Demat account obviates the need to pay stamp duty (in case of physical shares, 0.5 per cent stamp duty is payable).
  • There is no odd lot problem. Even one share can be bought or sold.
Documents Required for Opening a Demat Account
You can open a demat account with a bank or a depository participant (DP). Banks usually give preference to those customers who have a savings or current account with the bank. Along with the application form, following documents are required:
  • A cancelled MICR cheque
  • Identity proof
  • Address proof
  • Copy of PAN card (mandatory)
  • Photograph of the applicant.
Procedure for Dematerialisation
For dematerialization of physical share certificate(s) you have to first fill the demat request form (DRF). The form can be obtained from the DP with whom your demat account is opened. Deface the share certificate(s) by writing across Surrendered for dematerialisation. Submit the DRF & share certificate(s) to DP. DP would forward them to the issuer. After dematerialisation, your depository account would be credited with the dematerialised securities.


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indianist said...

Nice explanation about demat account ... thanks