Demat Account - 15 Mints Seminar Notes

 Demat Account - 15 Mints Seminar Notes

What is Demat Account?

A demat account (short for "dematerialized account") is an account to hold financial securities (equity or debt) in electronic form. In India, demat accounts are maintained 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.

 

Documents Required.

Opening a demat account requires providing documents that fulfill the requirements of KYC (Know Your Customer).[4] 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

•    KYC

Advantages :

The benefits of demat account are as follows  

• Easy and convenient way to hold securities
• Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated
• Reduced paperwork for transfer of securities
• Reduced transaction cost 
• No "odd lot" problem: even one share can be sold 
• Change in address recorded with a depository participant gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them separately. 
• Transmission of securities is done by the depository participant, eliminating the need for notifying companies. 
• Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc. 
• A single demat account can hold investments in both equity and debt instruments. 
• Traders can work from anywhere (e.g. even from home).
  

Disadvantages: 

• Trading in securities may become uncontrolled in case of dematerialized securities.
  
• It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors.
  
• For dematerialized securities, the role of key market players such as stock-brokers needs to be supervised as they have the capability of manipulating the market.
  
• Multiple regulatory frameworks have to be conformed to, including the Depositories Act, Regulations and the various By - LawsBy - law of various depositories.
  
• Agreements are entered at various levels in the process of dematerialization. These may cause worries to the investor desirous of simplicity.
  
• There is no provision to close a demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges, etc.
  
• After liquidating the holdings, many Indian investors don't close their depository participant account. They are unaware that depository participants charge even on dormant accounts.
  

Types of demat accounts

Three types of demat accounts offered by depository participants

• Regular demat accounts
  
• Repatriabledemat accounts
  
• Non-repatriabledemat accounts
  

 

 

 

Presented By,

Rakshith 

Banking Student

Magme School Of Banking