What is the meaning of DEMAT account?
A DEMAT account may be a de-materialized account utilized within the Share Market as a foster account so that all the exchanges can be done from a specific account. A DEMAT account (brief for “dematerialized account”) is an account to hold monetary securities (equity or debt) in electronic shape. In India, demat accounts are kept up by two depository organisations, National Securities Depository Limited and Central Depository Services Limited. A depository participant, such as a bank, acts as an intermediary between the investor and the depository. The Demat account number is quoted for all exchanges to empower electronic settlements of trades to take place. Access to the dematerialized account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the dematerialized account are automatically made once transactions are confirmed and completed.
India received the demat account for electronic putting away, wherein offers and securities are spoken to and kept up electronically, in this way disposing of the inconveniences related with paper shares. After the presentation of the safe framework by the Depository Act of 1996, the theme hod for deals, buys and exchanges of offers got to be essentially less demanding; most of the dangers related to paper certificates were mitigated. It also makes a difference to play down the time of exchange of offers.
Essential Features of DEMAT account:
A depository is an institution holding a pool of pre-verified offers held in electronic mode that gives proficient settlement of exchanges. In India, National Securities Depository Restricted and Central Depository Administrations Restricted are two assigned depositories. A depository member is a middle person between the investor and depository. A depository member is regularly a money-related organization like a bank, broker, budgetary institution, or overseer acting as an agent of the depository to form its administrations accessible to the investors. Each depository member is allotted a one-of-a-kind distinguishing proof number. As of March 2006, there was an add up to 538 safe members enrolled with the Securities and Exchange Board of India.
Converting physical records of ventures into electronic records is called “dematerializing” of securities. In order to dematerialize physical securities, investors must fill in a demat request form, which is accessible to the depository participant, and submit the same along with physical certificates. Every security has an International Securities Identification Number. A separate request form must be filled for every identification number.
The complete process of dematerialisation is outlined below:
- The investor surrenders the certificates for dematerialisation to the depository participant.
- Depository participant updates the account of the investor.
- Demat accounts are kept up by National Securities Depository Limited and Central Depository Services Limited and the banks act as intermediary.
Types of demat accounts:
- Three types of demat accounts offered by depository participants
- Regular demat accounts
- Repatriable demat accounts
- Non-repatriable demat accounts Fees:
There are four major charges usually exacted on a Demat account: account opening charge, annual maintenance fee, custodian fee, and transaction fee. Charges for all fees vary by depository participant.
- An Account-opening fee may not be an opening account charge. Private banks don’t have one, but other entities do force an opening charge.
- Annual maintenance fee. This is additionally known as folio upkeep charges and is for the most part exacted in progress. It is charged on a yearly or month-to-month basis.
- Transaction fee
Opening a demat account requires providing documents that fulfill the requirements of KYC (Know Your Customer). A contract with a stockbroker does not have to be signed. Generally, the documents are:
- Permanent account number (PAN) (compulsory)
- Bank statement (last 3 months)
- Proof of address
- Income tax return or salary slip
- Bank crossed cheque
- Aadhar card
Transfer of shares between depository participants:
To transfer shares, an investor has to fill in one of two kinds of depository instruction slips. The first check made is whether both demat accounts are at the same depository. There are two depositories: Central Depository Service and National Securities Depository. If both demat accounts are not at the same depository, then an inter-depository slip has to be filled and submitted.
The benefits of demat account are as follows:
- An easy and helpful way to hold securities
- Safer than paper-shares (prior dangers related to physical certificates such as terrible conveyance, fake securities, delays, burglaries, etc. are generally eliminated)
- Reduced printed material for exchange of securities.
- Reduced exchange cost
- No “odd part” issue: indeed, one share can be sold
- Change in address recorded with a safe member gets enlisted with all companies in which financial specialist holds securities dispensing with the have to be compared with each of them separately.
Benefit to the company:
The depository system helps in lessening modern issues due to lower printing and dispersion costs. It increments the proficiency of the registrars and transfer specialists and the secretarial division of a company. It gives way better offices for communication and timely service to shareholders and investors.
Benefit to the investor:
The depository system decreases dangers included in holding physical certificates, e.g., misfortune, robbery, mutilation, imitation, etc. It guarantees transfer settlements and reduces delays in the registration of shares. It guarantees a quicker installment on the deal of shares. No stamp obligation is paid in exchange for offers. It gives more adequacy and liquidity of securities. It helps avoid bad delivery problems due to signature differences, etc.
Benefits to brokers:
It reduces risks of delayed settlement. It ensures greater profit due to an increase in volume of trading. It eliminates chances of forgery or bad delivery. It increases overall trading and profitability. It increases confidence in their investors.
- Trading in securities may get to be uncontrolled in the case of dematerialized securities.
- It is officeholder upon the capital advertise controller to keep a near observe on the exchanging in dematerialized securities and see to it that exchanging does not act as a hindrance to investors.
- There is no arrangement to shut a demat account, which is having illiquid offers. The financial specialist cannot near the account and he and his successors need to go on paying the charges to the member, like yearly folio charges, etc.
- After selling the possessions, numerous Indian speculators do not near their store member account. They are uninformed that vault members charge indeed on torpid accounts.
SEBI has taken different arrangement activities to popularize the demat concept. One of them is the conveyance of demat shares compulsorily for institutional investors specialists and OCBs. In any case, these financial specialists have been permitted to purchase offers in physical form, get them exchanged in their names, and immediately get them dematerialized. The usage of the rules is subject to the condition that the company should get a certificate of practice, that the company has taken after the strategy said within the scheme and to affect that: The company has taken after the necessary procedures for affecting the first exchange; The register of individuals of the company was, in like manner, corrected and the offers were exchanged in support of the transferee; The company has satisfactory strategies and has fulfilled itself that the transferee and the substance asking dematerialization are one and the same and sometime recently affirming the dematerialization request; the company has further amended its register of members to indicate the transfer from the transferee to any agency; The company has defaced and cancelled/mutilated all the certificates. The company has an adequate system to ensure that the investor does not lose his corporate benefits on account of the transfer entries in favour of the agency.
Over the last decade, the Indian capital market has been growing by leaps and bounds. India has the largest number of listed companies in the world today. It also boasts of a large number of shareholders, about 32 million. Paradoxically, the problems associated with transactions, clearing, and settlement were also on the rise. Simultaneously, they expose the investors to greater risks. Indian market thus required a new system that would eliminate all problems of investors and would give them a healthy environment, and would strengthen their faith in the capital market, which was very low due to scams. Inordinate delay in the investigation of these scams and escape of wrongdoers from the law – created doubts in the minds of investors. The position has substantially improved after the introduction of the depository system.