Demat Account

What are the features, benefits, and disadvantages of the Demat Account?

During the last decade of the 20th century, the SEBI, stock market regulator of India took some bold decisions that changed the work style of the market. The computerization was introduced to the market, and the share trading was taking the shape of electronic transactions. The demat accounts were also introduced in the same phase, and hence the share transactions were made easy than before. The Demat account holding was made compulsory by the SEBI for everyone whoever want to deal in market irrespective of trading and investment. Dematerialization, i.e., Demat is the process where the shares are held in physical format and are canceled or destroyed, and after that, the ownership of the shares is retained in the electronic mode with a depository.  In short, the demat account is a way of holding the shares in the electronic form. At present, there are only two depositories operating in India namely, National Securities Depository Limited (NDSL) and Central Depository Services Limited (CDSL). The securities and exchange board of India (SEBI) is the regulating authority for the demat account operations.

The demat shareholders can avail the following rights:

  1. To receive notice and explanatory statements of the general meetings.
  2. The right to participate and vote in the general meetings either personally or through a proxy.
  3. They have the right to receive postal ballots forms as well as the notice.
  4. They are entitled to receive any type of annual reports and other periodical reports.
  5. They have the right to inspect statutory registers and documents in the working hours fixed by the company.
  6. The shareholders also have the right to demand a poll on any resolution in the general meetings.
  7. They have right to receive the dividends if any.
  8. They also have the right to receive right shares and bonus shares if they are declared and approved.

The demat account holders have several other rights which are as good as the rights enjoyed by the shareholders holding securities in the physical form.

Advantages of holding shares in the Demat Account:

  • It eliminates the risks associated with physical certificates like getting lost in transition or torn or stolen.
  • It eliminates the chances of bad deliveries of the share certificates.
  • One does not need to pay the stamp duty on the transfer of the shares through Demat Account.
  • It makes for a faster way of trading as well as transferring the shares along with fast settlement cycle.
  • Pledging of the shares becomes quite easy
  • It makes for the best online platform to monitor as well as check the status of the securities you hold.
  • One can receive balance statements in the email automatically.
  • A lot of jobs such as changing address, name, nominations in the joint holding and bank mandates become quite easy as the forms can be submitted directly to the depository.
  • It is easier to subscribe to IPO with a demat account than the manual way.

Sandeep Malik

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