Dematerialization is the procedure wherein the physical share certificates are converted to a digital form. To hold investments in an electronic mode, you need to open a dematerialization account with a Depository Participant (DP).
The primary objective of digitalization is to enable you to hold your investments in a digital form. It is more convenient and secure because there is no risk of damage or loss that is associated with the physical holdings.
Features of a dematerialization account
You may open a demat account with a DP either in a single name or as a joint account. However, this account can have a maximum of three holders.
The account may also be opened in the name of a minor that may be operated by a guardian until he becomes an adult. The guardian must be the father and in case of his absence, the mother may act as the guardian. If both parents are absent, the court will appoint a guardian. However, a minor cannot be the joint holder of a dematerialization account.
Trusts registered under Public Trust Act, 1860, Societies Registration Act, or any Public Trust Act may open a demat account. For private or unregistered trusts, the account may be opened in the name of the trustees.
Dematerialization account cannot be opened by a Hindu Undivided Family (HUF). However, the investments may be held in the name of the Karta.
You may open multiple accounts in your name with the same or different DPs. You need to adhere to the Know-Your-Customer (KYC) norms while opening the account. For KYC, you need to submit identity proof and address proof as regulated by the Securities and Exchange Board of India (SEBI).
Steps of opening a demat account
- Approach any DP that is the agent between you and the depository
- Complete and duly sign the account opening form
- Submit necessary documents such as identity proof, address proof, and photograph
- You will also need your original Permanent Account Number (PAN) card to open the account
Benefits of a demat account
- Reduced risk of robbery and theft
- Easy and quicker transfer procedure
- Eliminates the need to pay stamp duty at the time of transfer
- You may sell odd-lots (including a single share) when you hold a demat account online
- You may trade in all types of securities such as shares, bonds, and debentures in a single account
- Instant credit of rights and bonus issues
- Companies are able to reduce their expenses on printing and distribution of physical certificates
- Brokers are able to enjoy higher profit margins with risks of forgery and bad deliveries being eliminated
You need to pay annual maintenance charges (AMC), dematerialization and rematerialization charges, and other fees on these accounts. Nonetheless, the aforementioned benefits along with the mandatory requirements of the regulators make these accounts highly advantageous.