The benefits of a demat account

Fill up lengthy forms,stand in ques for hours in the bank to deposit the money and thereafter wait for acceptance letter by the firms. These were some of the steps to be taken to grab hold of the few shares of the reputed companies listed in the stock exchange. There were other problems also, like fake shares, theft or loss of share certificates and untimely payment. Demat account eliminated the endless paperwork and delays and allowed investors to buy, sell and transact shares in a safe, secure and convenient manner.

Demat refers to a dematerialized account that is similar to an account with a bank required for the transactions of money. Investors can buy or sell stocks with a demat account. Actual money is replaced by shares in case of a demat account. One can trade only 500 shares in physical form without a demat account as per the limit set by the the Securities and Exchange Board of India (SEBI). So a demat account is a must for trading and investing. Share trading have to be practically carried out in dematerialized form.

Benefits of demat accounts:

• it eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation and reduces brokerage charges,
• It enables quick ownership of securities resulting in increased liquidity and makes the processes like pledging and hypothecation of shares much easier,
• It reduces time taken to stock trading drastically avoiding problems encountered in case of physical shares like signature mismatch, postal delays and loss of certificates in transit.
• It helps in easy settlement of the ownership title of securities, and provides easy receipt of public issue allotments.
• Demat account holders need not pay stamp duty posted in case of physical shares
• It do away the requirements of filling up of transfer deeds,

Demat Account:

Demat account is similar to a saving bank account. Instead of money, the shares are held electronically in the account. As an investor buys and sells the shares, these are adjusted in his account and periodic statements of holdings and transactions are provided by the DPs. A demat account does not require a minimum balance of shares for opening an account or no minimum balance to be maintained either for operating a demat account.

A depository is a place where the stocks of investors are held in electronic form. There are only two depositories in India -- the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). The depository has agents who are called depository participants (DPs). There are over a 100 DPs. Depository participants are mainly banks and brokers. A broker is a member of the stock exchange and authorized to buy and sell shares on his behalf and on behalf of his clients whereas a DP will just provide an account to an investor to hold those shares. One has to approach the DPs to open a demat account.

People willing to open an account need to fill up an account opening form and sign an agreement with DP. The charges for account opening, annual account maintenance fees and transaction charges vary between DPs. There is also a provision for nomination and one can nominate whoever he like by filling up the nomination details in the account opening form. This is to enable the nominee to receive the securities after the death of the holder of the demat account. The DP allots a unique BO ID (Beneficial Owner Identification) Number which is needed to be quoted for all future transactions. Whenever an investor want to sell its shares, he need to place an order with the broker and give a 'Delivery Instruction' to his DP. The DP will debit his account with the number of shares sold. The broker will provide payments to the account holder. When an investor is interested to purchase shares, he has toinform the broker about his Depository Account Number to get shares credited into his account.

List of documents required for opening an account is given in the right side bar. All the documents listed are not required. DP may ask to make available any two or three documents from the list. PAN card is a must for opening a demat account.