Traditionally, investors used to hold physical certificates of shares. However, physical share certificates carried numerous risks such as loss, theft, and bad delivery, among others. With the advancement of technology, transactions are now done through a dematerialization account.
About dematerialization account
According to the guidelines of Securities and Exchange Board of India (SEBI), the regulator for the securities market in India, investors can no longer transact shares in the physical form at the BSE and NSE exchanges. This, therefore, indicates that a dematerialization account is mandatory for the purchase and sale of shares.
A Dematerialization account, also known as a demat account, functions similarly to that of a savings account. In a savings bank account, you may deposit or withdraw cash as per your needs. Similarly, a dematerialization account holds securities in an electronic form, thereby facilitating the debit and credit of shares.
Reasons to open a dematerialization account
The reasons to open demat account are many. It eliminates the risk of damage, loss, theft, or fake shares. Besides, it holds all your investments in a single account, thereby avoiding the hassles of maintaining different accounts for varied investments. A dematerialization account also comes with a reduced cost, as the need to pay stamp duty while transferring securities is eliminated. Additionally, there is no need for a transfer deed while trading through a dematerialization account.
Role of a demat account in transacting shares
Some individuals have a pre-conceived notion that transacting through an online demat account is difficult and time-consuming. However, the same is not true. All you have to do is instruct your broker to buy a certain number of shares. The shares are then credited to your account by your broker. The shares are then displayed in your statement of holding. Generally, you may expect the shares to get credited on a T+2 basis, which means two days after the trading day. If you are trading digitally, through the Internet, you may monitor your holdings online.
The process of selling shares too in similar. In case you wish to sell a certain number of shares, you may provide your broker with a delivery instruction note stating the stock details. The shares are then debited from your dematerialization account and you are paid for the sale of shares. In an event that you are trading through your demat account online, the account will show the shares being debited and the amount is credited automatically.
The process of demat account opening, as well as trading through the account, is quite simple. You may, therefore, execute your transactions with a click of a button from the comfort of your home.