Dematerialization of Shares: Meaning, Process and Benefits

It’s sometimes hard to keep track of all the paper-based documents. Moreover, the increasing amount of papers day by day may lead to missing an important document. It can become the cause of the breakdown of the Indian Share Market and any businesses associated with it. Not only that, if a share is being transferred 0.5% is saved for stamp duty. If the original certificates are somehow misplaced it saves time and money in obtaining duplicate certificates. Shares that are dematerialized receive credits and bonuses right into their account hence no chances of loss in transit followed by fewer interest charges for loans associated with Demat accounts.

Dematerialization starts with opening a Demat account. So, let’s first see how to create an account.

• Select a depository participant (DP): Most financial institutions and brokerage service firms are referred to as Depository Participants.
• Fill an account opening form: You need to fill an account opening form to open a Demat account. This includes basic contact information.
• Submit documents for verification: You need to submit a copy of your income proof, identity proof, address proof, active bank account proof, and one passport-sized photograph for verification. All copies of documents need to be duly attested.
• Sign a standardized agreement with the DP: A standardized agreement will contain the rules and regulations, charges you will incur, and the terms and conditions of the agreement between you and the depository participant.
• Verification of documents: A staff member from the DP will verify all the documents that you have submitted in your application.
• Demat account number and ID are generated: Once all your documents have been verified, your Demat account number and ID will be generated. You can use this information to access your online Demat account.

• • Easy and Convenient

  
  
  
  

A Demat account provides you the facility to carry out the transactions electronically. There is no need for you to be physically present at the broker’s place to settle a transaction. Moreover, the investor can have access to the Demat account using a computer or smartphone. In addition, you can convert your physical holdings into electronic format to become the legal owner of your shares.

• • Fund Transfer

By linking your Demat account with the bank account you can easily transfer funds electronically. This saves you from the hassles of drawing a cheque or transferring the funds manually.

• • Safe and Secure

Demat account is the most secure and safest way to carry out transactions by electronic means. All the risks like theft, damage, loss of share certificates, etc. that were associated with holding shares in physical form are completely eliminated.

• • Nomination Facility

A demat account provides you the facility to grant the right to operate your Demat account to the nominee in your absence. With this facility, you can carry out transactions in your Demat account with the help of a nominee when you are not in a situation to do it yourself.

• • Paperless

One of the main benefits of using a Demat account is that it excludes the need for paper. Since the Demat account is about holding shares or securities in electronic form, the need for the paper is almost zero. In addition, the Demat account has also proved to be very useful for the companies in reducing their administrative costs and hassles. Furthermore, cutting down paper usage is also good for the environment.

• • Avail Loan Facility

The Demat account helps you in availing loans against the holdings in dematerialized form. The securities and shares held in the Demat account can be kept as collateral and loan can be taken against them.

• • Easily Traceable

With the help of a Demat account, you can monitor your portfolio from your home, office or anywhere across the globe. The flexibility to be able to monitor the portfolio performance enhances the chances of you making more profits because of the increase in participation and interest.

• • Ease In Receiving Corporate Benefits

Demat account eases the process of receiving various corporate benefits like dividends, interest, refunds, etc. All the benefit amount gets directly credited into the Demat account. Moreover, other benefits like stock splits, bonus shares, rights shares, etc. get directly updated into the Demat account.

• • Multiple Purposes

In the Demat account, you can not only hold shares or equities but also debt instruments. You can even purchase, hold and sell mutual fund units through the Demat account. In fact, you can even purchase government bonds, exchange-traded funds, etc. in the Demat account.

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