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Aims and Objectives of Demat Account

25 Jul 2021 0 COMMENT

Over the last two decades, India's capital markets have changed dramatically. Over time, the scope and size of the operations have expanded to unprecedented levels. The increase has occurred in tandem with a slew of technological changes made by stock exchanges. Indian stock exchanges switched from physical to electronic trading of securities in 1996. This shift was followed by introducing the Demat account as a result of the Dematerialisation of shares. Let's understand why the transition was significant and why the Demat account plays a vital role for investors.

When you started giving a thought to share market investments, you start reading about the requirements for stock market investing and procedures from various sources. You know about the mandate of the Demat account that SEBI (Securities and Exchange Board of India) has issued for the stock market investors. It's been a while since you are an investor in the stock market, but one question remained unanswered; why the Demat account? You are aware of the ease of trade and investment it provides for stock market investors but does Demat play the role of ease trading only, or is it more significant? Let's start understanding the purpose behind it by first looking into the basics.

What is a Demat Account?

Consider that you are buying a mobile phone from a store. You check a piece, the sample, see the functions and see the model to choose. Once selected, you head to the counter for payment. But instead of the piece that you checked, you see that the salesman brings you a new piece from the godown or different storage. The buying and selling took place in the store, but every time a mobile is sold, a new piece is given from the godown.

Similarly, the shares are bought and sold from the trading account, but the shares are stored in the Demat account. A Dematerialised (Demat) account allows you to hold your financial instruments electronically rather than in paper form. If you keep your money in a savings account, you keep your shares in a Demat account. It's important to remember that you can't trade stocks without a Demat account if you're an investor. You can keep the certificates of all your financial instruments, such as mutual funds, Exchange Traded Funds (ETFs), shares, and bonds, online with a Demat account.

Additional read: 7 Things to know about a Demat account

Types of Demat account

In India, there are three different types of Demat accounts. Whether you are a Resident Indian (RI) or a Non-Resident Indian (NRI) determines which category of Demat account you can have in India.

Regular Demat account

This account is available for all Indian citizens residing in India for them to trade in securities electronically

Repatriable Demat account

A non-resident Indian can open a repatriable Demat account for transferring money from overseas. But the account has to be linked with an NRE (Non-resident External) bank account

Non-repatriable Demat account

The non-repatriable Demat account is another type of Demat account for you if you are an NRI. The difference between a repatriable and non-repatriable Demat account is that you cannot transfer funds from abroad in the latter. You will need to link an NRO (Non-Resident Ordinary) bank account with it

Objectives of a Demat account

The central objective of a Demat account is to safely hold your financial market securities in an electronic form and transfer them from one account to another whenever a trade takes place. Besides this, a Demat account aims to provide the following objectives,

Convenience and Safety

As a Demat account is maintained digitally, the risk of theft/losing shares or bond certificates, and damage and forgery is eliminated. In addition, you are logged in as the sole owner of the securities you have purchased once a transfer is completed. It is also making the Demat account convenient for all the investors.

Error-free, Easy Transfer of Shares

A Demat account is designed to transfer securities from one Demat account to another as efficiently as possible. Thus, a Demat account aims to reduce the time it takes to complete a successful securities transfer. Moreover, since there are no physical settlements involved in a Demat account, there is no scope for manual errors. It facilitates the execution of transactions without errors at a rapid pace.

Additional Read: How to Transfer Shares from One Demat Account to another?

Elimination of Stamp Duty

When shares were dealt with physically, the process involved buying the transfer share stamps and pasting them at the bottom of each certificate. The stamps were only at the stock exchanges. It was a hassle for the investors then. Demat account eliminated this process, thus making it not only time-efficient but also cost-effective.

Unlimited Transfers

Previously, the transfer and trade of securities in the stock market were subject to several restrictions. Shares were sold only in lots. However, with the help of technological advancements, you can buy or sell as many securities as you want, at whatever price, and in whatever quantity. That is, without any of the restrictions that existed previously.

Additional Read: Top Features & Benefits of Demat Account

Advantages of a Demat account

The possession of a Demat account offers you the following advantages,

Accessible

The digital format of a Demat account allows you to make trading transactions from literally anywhere during the trading hours of the market. It only requires an internet-connected device such as a laptop, smartphone, etc. for processing a transaction.

Easy and quick availability of Security Benefits

Demat accounts give you quick transactions. It enables you to receive an auto-credit of your refunds, stock dividends, etc. Receiving the stock splits, public issues, bonus shares, rights, etc. have become quick, convenient, and error-free with Demat accounts.

Single point of Contact

Your Demat account houses not just your stocks but also all your other form of investment in other asset classes. This one-stop storage for all your financial market investments makes it easy to track your investments. Additionally, before the advent of a Demat account, a change or update in your name, address, contact details, etc. would require you to make necessary intimations at multiple touchpoints. Luckily for a Demat account, you have to update only your registered broker/bank with the KYC changes. It will lead to an update reflected in all your Demat accounts.

Additional Read: Know How to Change Name in Demat Account

Stress-free Transmission

In a Demat account, you have the provision of holding it jointly with another person and having an account nominee. Thus in case of your unfortunate demise, your securities and assets will be transferred without any legal hassle to your designated family member.

Additional Read: Joint Demat and Trading Account Details

Conclusion

The securities market and various depository participants have upgraded themselves to give an enhanced experience to the investors over time. At the same time, the main goal of a Demat account remains to enable investors/holders of the account to hold and transfer securities.

It also provides an efficient and optimized trading experience for the investors and a settlement guarantee. This eliminates issues the investors faced while transferring the shares until recently when the Dematerialisation did not exist.

Disclaimer

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.