Aims And Objectives Of Demat Account
More on Demat Account
Aims And Objectives Of Demat Account have different propositions for different kinds of parties involved, be it a trader, an investor, a stockbroker, regulatory body, exchange and so on.
Let’s have a quick look at how these objectives work towards and sometimes, against your investment goals.
But first, let’s start with a few basics.
Investing your hard-earned money in the share market was never this simple.
All you need is a demat account and some luck to enjoy great profits. Some of you may not know much about demat accounts. It is basically quite similar to a bank savings account.
The only difference between the two is that instead of money, your demat account holds all of your securities, which may be in the form of debentures, bonds or even shares of a company.
It’s good to know Demat account rules after knowing the objectives.
In this modern era, trading in the share market will require you to have a demat account. Without one, it will be impossible to trade in the stock market.
What Are The Aims And Objectives Of Demat Account?
Gone are the days when shares were available in physical forms.
In this day and age, company shares are available in electronic formats. A demat or dematerialized account (Read: What is Dematerialization?) is basically an electronic account, where all the different types of securities are held in electronic formats.
Thus, if you ever wish to trade in the share market, you will need to open a demat account as the first step. Demat accounts are opened with a DP or Depository participant.
There are several aims and objectives of demat account, which will be discussed later.
Depository Participants And Depositories
Depositories are primarily those organizations that hold all of your securities in an electronic form and also allow you to carry on with your transactions.
There are 2 depositories that are registered with SEBI. These are NSDL or National Securities Depository Limited and CDSL or Central Depository Services Limited. Both offer their own kinds of demat accounts including a CDSL Demat account and an NSDL demat account.
The CDSL Demat Account Opening or NSDL Demat Account Opening can be done with any registered stockbroker.
On the other hand, depository participants are basically middlemen or agents placed between the investors and the depositories. If you wish to avail of the services of any one of the depositories, you have to proceed with the help of a depository participant or DP.
The account that you open with a DP is known as the demat account.
Aims and Objectives Of Demat Account Details
There are several aims and objectives of demat account, which are discussed below for your knowledge.
1. Extremely Convenient and Safe:
When you talk about the aims and objectives of demat account, the first point that comes to your mind is the safety and convenience associated with such an account.
When shares were available in physical forms such as certificates, the chances of losing or misplacing the certificates were quite high. With the help of a demat account, everything is electronic, which eliminates the possibility of you losing the shares.
This also makes it highly convenient for investors.
2. Transfer of Shares Made Simple:
The second point amongst the various aims and objectives of a demat account is the easy transfer of shares to your name. In the past, shares had to be first sent to the company or the registrar in order to transfer them to an investor’s name.
This was a very lengthy process and often took months to complete.
At times, certificates also got lost in the process.
Thankfully, with the help of demat accounts, the transfer of shares is no longer a tedious process and takes a few hours or a few days.
3. No Need for Stamp Duty:
Dealing with physical forms of shares meant buying share transfer stamps and pasting them at the bottom of the certificates. This was a cumbersome process and sometimes investors also had to visit the stock exchange to buy such stamps.
In this era of demat accounts, the problem associated with stamp duties is gone and the entire process has become very simple and convenient.
4. No Risk of Theft and Forgeries of Shares:
Amongst all the aims and objectives of demat account, one of the primary ones is the elimination of theft and forgeries of company shares.
When shares were in the form of certificates, the cases of theft and forgeries of such shares were quite high.
However, due to the inclusion of demat accounts in share dealings, such cases of theft and forgeries have become a thing of the past.
5. Reduction of Transaction Costs and Paperwork:
Since everything has become electronic, the entire process of buying new company shares and selling existing ones has become very fast and less costly.
This was not the case in the past. During those times, a lot of paperwork and transaction costs were included in the process of share dealings.
6. No Minimum Limit To Number of Shares Sold:
In the past, the selling of existing shares came with a lot of terms and conditions. One of them included the inability to sell shares in odd lots. This often resulted in a major headache for investors who wished to sell shares in such odd lots.
One of the aims and objectives of the demat account was to get rid of such restrictions when it came to the selling of existing shares.
Today, you can easily sell even as low as a single share.
7. Change of Address Made Simple:
Historically speaking, a change of address meant informing different companies separately. This was a major headache for investors who held shares of different companies at the same time. Filling up a change of address form of different companies also resulted in a waste of time.
One of the aims and objectives of a demat account is to get rid of such hassles and to simplify the life of investors, who wished to change their addresses.
All you need to do is record your new address with your DP and it will automatically get registered with all the companies, the stocks of which you currently hold in your name.
Documents Required For Demat Account
Whether you go to a bank to open a savings account or visit a DP to open a demat account, you will have to submit some essential documents to prevent any type of fraudulent activity.
This entire process is known as KYC (Know Your Customer) or the customer identification process.
Some of the various categories of documents required while opening a demat account are mentioned below.
- Proof of Identity (POI): This will require you to submit either your PAN card, Aadhaar card, voter ID card or passport.
- Proof of Address (POA): This will need you to submit either your ration card, utility bills, passport, driving license or bank statement.
- Bank Account Number: Either your bank statement or a cancelled cheque will be sufficient for this category.
Open A Demat Account
Opening a demat account is may involve a lot of documents, but the entire process is not a tedious one. It is quite simple and takes a couple of weeks to complete.
As the first step towards opening a demat account, you need to search for a DP that is registered with SEBI and also provides a demat account with good enough features and benefits (also read: benefits of demat account).
Once you have chosen a DP, the next step would involve you filling up the relevant demat account opening form.
Once this is done, the next step will be to submit all the relevant documents, which have been discussed above. In order to verify all the documents, a DP staff will contact you and verify all the documents that you had submitted earlier.
Once everything clears off properly, you will receive the details of your demat account from your Depository Participant.
It is good for you to note that you can open more than one demat account under your name with the same DP or with different DPs. Once your demat account is all set, you will be ready to go ahead with your trading in the share market.
Since different Depository Participants provide some minor differences in the features and benefits associated with their demat accounts, it will be wise on your part to take some time and compare the different DPs and their demat account benefits before choosing the right one.
In case you are looking to get started with opening a Demat account, just fill in some basic details in the form below.
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