A Demat account is an account in which shares, bonds, debentures, government securities, etc., can be kept in paper form, in the form of electronic records by ‘Demat’ (dematerialisation) without holding share certificates. This account is registered with CDSL (Central Depository Services Ltd.) in the form of electronic records.
The Demat account number is cited for stock market transactions. Generally, each shareholder has a Demat account for transactions.
An Internet password and a transaction password are required to use a Demat account. From there, new securities can be purchased or transferred. Transactions of purchase or sale in the Demat account are done automatically after the transaction is confirmed.
The purpose of Demat systems:
1) The system came into existence in India to store shares and securities electronically.
2) The system, which came into existence under the Depository Act of 1996, made it much easier to buy, sell and transfer shares and to avoid other risks related to share certificates.
3) Demat started trading on the National Stock Exchange in 1996. That was the beginning of paperless transactions.
Benefits of Demat:
1) As soon as the bonus shares are distributed to the shareholders, they are credited to his account.
2) There is no danger of fire, theft or anything like that.
3) It costs less to go there personally and do business.
4) There is no risk in having actual share certificates. Such as mismatch of signature, delay in posting or loss of certificate.
There is no stamp duty.
5) No transfer deed is required.