Dematerialization, also known as Demat, is a process of converting physical share certificates into electronic format. In India, the Securities and Exchange Board of India (SEBI) mandated Demat accounts for share trading in 1996. While many investors still prefer physical shares, Demat accounts offer several advantages over them. Here we will get an overview of the difference between Demat accounts and physical shares, and why making the switch to Demat accounts can provide a better investment experience:
Convenience and portability:
Physical shares can be inconvenient and difficult to transfer, especially if the investor wants to transfer shares to someone in another city or state. Demat accounts, on the other hand, are portable and can be accessed from anywhere in the country. Furthermore, Demat accounts can hold shares of multiple companies, providing easy access to all investor holdings.
Safety and security:
Physical share certificates can be lost, stolen, or damaged over time. In contrast, Demat accounts have advanced security features that ensure the safety and integrity of the securities. They are under the custody of Depository Participants, who provide a centralized registry for all shares held in the account. This makes it easy to monitor securities and track their performance over time.
Physical share transactions come with a host of expenses, such as stamp duty, handling fees, and other charges. Demat accounts eliminate the need for these expenses, and the cost of holding securities in a Demat account is much lower than holding physical securities.
In the case of physical shares, investors have to wait for physical shares to arrive before receiving dividends. This process can lead to delays, and sometimes shareholders’ checks get lost in the mail. Demat accounts provide a quick and hassle-free way of receiving dividends because the investor’s bank account is linked to the account.
Easy Loan Facilities:
Investors can get easy loans against their Demat account holdings. This is because the shareholding is already in electronic format, making it easy for banks to verify the holdings and approve the loan.
Making the Switch to Demat Accounts for a Better Investment Experience:
Increasingly, investors recognize the advantages of holding securities in electronic form through a demat account. The ease and convenience of online trading, low transaction costs, portability, security, and other benefits are making demat accounts more popular than ever, even among traditional investors.
In conclusion, switching to a Demat account from physical shares can provide a better investment experience. Demat accounts offer several advantages, such as convenience, safety, cost-effectiveness, dividend payments, and easy access to loans. The process of opening a demat account is simple. Investors can quickly start trading the stock market with brokers and online trading platforms. Overall, demat accounts provide a more efficient and streamlined way of investing, making them an essential tool for anyone looking to invest in securities. I wish you the best of luck with your investments using a demat account.