Demat Account-History and Overview

Demat – The Beginning

Post-liberalisation of the Indian economy in 1991, the Indian Government established SEBI as the regulator for the securities markets in 1992. SEBI began to bring about reforms in the securities market. One major reform carried out by SEBI was the Dematerialisation of securities.

Dematerialisation is converting physical share certificates into electronic book entries similar to bank accounts. It eliminates issues such as the risk of bad deliveries, massive paperwork, loss and theft of share certificates, delay in transit, etc. With the help of dematerialisation, these problems have become a thing of the past.

Demat Account – The Process Begins

The Parliament of India passed the Depositories Act in the year 1996. With the enactment of the Depositories Act, the process of Dematerialisation received a solid backing of the law. National Securities Depository Limited (NSDL) led the Dematerialisation of securities, which pioneered Dematerialisation in India. Subsequently, Central Depository Services (India) Limited (CDSL) was established, and it became the second Depository to be recognised and licensed by SEBI.

As per Depositories Act, 1996, the Depository is the registered owner of the shares in the company’s records, and it holds the shares in its fiduciary capacity for the shareholder.

Further, Depositories have appointed various intermediaries known as Depository Participants to open and maintain Demat accounts for the investors. 

What is a Demat account?

Very much like your bank account where you deposit your money, a Demat Account holds all the investments you make in shares, government securities, exchange-traded funds, bonds and mutual funds in one place.

When we purchase securities, they appear as credits in our Demat account, and when we sell securities from the Demat account, they appear as debits in the Demat account.

The dematerialised securities are held on our behalf by the Depositories. However, the interface for you to operate the dematerialised securities is always a Depository Participant (DP).

The Depository Participant is an agent of the Depository through which we maintain and operate our Demat Accounts. The Depository Participant will intermediate between the Depository and us. This service is similar to a branch service of a bank that provides banking services. Just as banking services are availed through a branch, the depository services are availed through a Depository Participant.

How do Demat Accounts Work in India?

You can open a Demat Account either online or offline in India. To open an account offline, you need to approach a Depository Participant with the necessary documentation. The Depository Participant will carry out your Know Your Client KYC procedure and open a Demat account for you.

To open an account online, go the DP’s website. Go to the option that allows you to open a Demat Account. Much like the offline procedure, you need to produce the required document copies online. Once this is processed, your account will be opened.

You can use this Demat account to hold securities in a dematerialised form and transfer and receive securities in case of purchase and sale.

Additional Read: What is the procedure to open a Demat Account?

Conclusion

Demat Accounts have made holding of securities easier. There is no need to safeguard your documents physically. You can simply use your Trading Account to purchase securities and then have them stored in your Demat Account that you can operate online.

FAQs:

   1.  Who started Demat Account in India?

The Securities and Exchange Board of India introduced Demat Accounts in the country in 1996. Since then, it has become easy to buy, sell and trade securities in Indian markets.

   2.  Does a Demat Account expire?

While a Demat Account doesn’t expire, it can become dormant if not used for a long time. The period for which it is left unused for it to turn dormant depends upon the brokerage firm it is opened with.

   3.  When was Demat Account started?

In India, the SEBI introduced Demat Accounts in 1996. Prior to that, securities were traded in the physical format.

   4.  Who controls Demat Accounts?

Demat Accounts are maintained by the National Securities Depository Limited and the Central Depository Services Limited. DPs act as intermediaries.

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.  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 herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product.