Demat account is an account through which shares and securities are held in the share market in the form of electronic format. Full form of the Demat account is “dematerialised” account. A dematerialised account is a process of converting the physical share certificates into electronic form to make the trading of shares easier for the users during online trading. If an investor desires to trade online, it has to first open a Demat with Depository Participant (DP). The vital purpose of dematerialisation is to reduce the requirement of holding the physical share certificates and to facilitate smooth tracking and monitoring of holdings. A Demat account is similar to any other bank account, and to buy shares, whether online or offline, it’s necessary to create this type of account. It’s mandatory to have a bank account for Demat account.
Why is dematerialisation needed?
Dematerialisation is done to convert the physical shares into an electronic format for starting online trading. Along with holding securities in electronic format, there are multiple benefits of having this account. The benefits include:
Conveniently manage shares and transactions from anywhere
On electronic securities, stamp duty isn't levied
The holding charges levied are nominal
The risks that are involved with physical securities such as theft, loss, forgery or damage are eliminated
Purchase securities in odd lots and buy a single security
Since much of paperwork is eliminated, the completion time of a transaction is reduced