Demat account

In India, shares and securities are held electronically in a demat account or dematerialized account.
A Dematerialized account is opened by the investor while registering with an investment broker. The
Dematerialized account number is quoted for all transactions to enable electronic settlements of trades
to take place. Every shareholder will have a Dematerialized account for the purpose of
transacting shares.
In finance, dematerialization refers to the substitution of paper-form securities by book-entry securities.
The whole dematerialization process and the demat accounts are regulated by SEBI.

India adopted the Demat System for electronic storing, wherein shares and securities are represented
and maintained electronically, thus eliminating the troubles associated with paper shares. After the
introduction of the depository system by the Depository Act of 1996, the process for sales, purchases
and transfers of shares became significantly easier and most of the risks associated with paper
certificates were mitigated.

A demat is to your shares what a bank account is to your money. Simply put, it is the account that holds
all your shares in electronic or dematerialized form. Like the bank account, a demat account holds the
certificates of your financial instruments like shares, bonds, government securities, mutual funds and
exchange traded funds (ETFs). You cannot trade in the stock market without a demat account.

Benefits of DEMAT ACCOUNT

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Easy and convenient way to hold securities

Immediate transfer of securities
No stamp duty on transfer of 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 DP 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 DP, 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).

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In India, a Depository Participant (DP) is described as an agent of the depository. They are the
intermediaries between the depository and the investors.

Demat accounts are managed by NSDL (National Securities Depository Limited), NSDL maintains the
database of Shares held. Once your share is transferred to Demat account, you become the shareholder
in company and your name is entered in shareholders register of company.

Disadvantages of Demat Account

Trading in securities may become uncontrolled in case of dematerialized securities.

It is incumbent upon the capital market regulator to keep a close watch on the trading in
dematerialized securities and see to it that trading does not act as a detriment to investors.
For dematerialized securities, the role of key market players such as stock-brokers needs to
be supervised as they have the capability of manipulating the market.
Multiple regulatory frameworks have to be conformed to, including the Depositories Act,
Regulations and the various Bye-Laws of various depositories.
Agreements are entered at various levels in the process of dematerialization. These may
cause worries to the investor desirous of simplicity.
There is no provision to close a demat account, which is having illiquid shares. The investor
cannot close the account and he and his successors have to go on paying the charges to the
participant, like annual folio charges etc.
After liquidating the holdings, many Indian investors don't close their dp account.They are
unaware that DPs charge even on

How does a Demat Account Work?

CENTRAL DEPOSITORY:
There are two depositories in India the CDSL and NSDL. They hold all the demat accounts. The central
depository holds details of your shareholding on your behalf like banks.
UNIQUE ID:
Each demat account has a unique number for identification purposes. This is the number you need to
provide for transactions. The number will help the exchange and companies identify you and credit the
shares in your account.

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DEPOSITORY PARTICIPANTS:
Access to the central depository is provided by the Depository Participants or DPs. They act as the
intermediary between the central depository and the investor. DPs could be banks, brokers or financial
institutions that are empowered to offer demat services. Kotak Securities is one such Depository
Participant (DP). You open a demat account or a Beneficial Owner (BO) accounts with a DP, who will
provide you a unique access to the central depository.

PORTFOLIO HOLDING:
The demat account holds all your securities. So, whenever you check your account, you can see your
portfolio holding and its details. These are updated automatically every time you conduct a transaction
be is buying or selling a security.

Difference Between Demat and Trading Account

A trading account is used to place buy or sell orders in the stock market. The demat account is used as a
bank where shares bought are deposited in, and where shares sold are taken from. You need both
demat and trading accounts to trade in the market.

Practical Example:
You have Rs.100 in your wallet. You go to a shop and tell the seller that you want a pack biscuits, you
check the price, and finalize the transaction. Then, you take the money out of your wallet and give it to
the seller. In this case, the wallet acts as the demat account, while you act as the trading account.

TRANSFER SHARES USING DEMAT ACCOUNT

Nomination: You can have a nominee of your choice by filling up the details in the account opening
form. This enables the nominee to receive the securities after the death of the holder of the demat
account.
Between DPs: Transfer of shares is possible between demat accounts held with different DPs. You need
to fill the Delivery Instruction Slip Book (DIS) and submit the same to your DP for transferring your
shares from another demat account. However, you need to check whether the central depositories are
same or not (CDSL or NSDL). If both of them are different, then you need an INTER-Depository
Instruction Slip (Inter DIS). If they are same, then you need an INTRA Depository Instruction Slip (Intra
DIS).

Source: SEBI

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