Advantages and Disadvantages of Demat Account in India

If anybody wants to buy or sell shares in India through Indian stock exchange, they need a demat account. So if you wants to invest in stock exchange, opening a demat account is compulsory. Shares held by a way of certificates can be bought and sold. Many documents and signatures are involved while creating a demat account. It is a onetime procedure; you have to create an account only once to meet customer guidelines. There are multiple advantages and disadvantages with demat account. Here we are listing few of them.

Demat Advantages

1. It is a very safe and convenient way to hold securities. Here you no need to hold securities in physical form rather they kept in electronic form. So risks such as loosing shares due to theft, fire, flood, earthquakes will be avoided.
2. One can do immediate transfers of stocks from one account to another account with security.  So the process of buying and selling shares became easy and improves the efficiency and effectiveness of stock market.
3. We already stated that shares will be in electronic form, so there is no stamp duty on transfer of securities which reduces transaction costs associated with buying and selling of shares.
4. Demat account is not only for shares but you can also keep mutual funds, gold exchange traded fund, preference shares in it which makes it easier for individuals to keep track of their savings as they do not have to check several account details.
5. An individual having a demat account can even trade for 1 share also which was not the case when you hold them in paper form.
6. There is a major reduction in paperwork involved in transfer of securities, and reduction in transaction cost, etc.
7. Automatic credit into demat account of shares; arising out of bonus, split, consolidation, merger etc. can take place.

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In addition to the above benefits, there are several additional benefits advantages for companies, investors and brokers. Here we are listing the additional benefits.

Benefits to the Company:

The depository system helps in dropping the cost of new issues due to lower printing and distribution costs. Demat account improves the efficiency of the registrars and transfer agents and the Secretarial Department of the company. It affords better amenities for communication and timely services with shareholders, investors, etc.

Benefit to the Investors:

The demat account reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more suitability and liquidness of securities.

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Benefits to Brokers:

It reduces risks of delayed payment. It ensures better profit due to increase in volume of interchange. It eliminates chances of fake, bad delivery. It increases efficiency of trading, profitability and confidence in investors.

Demat Disadvantages

1. It is mandatory for the capital market regulator to keep a close watch on the trading in dematerialized securities and to check that trading does not act as a disadvantage to investors.
2. The role of key market players in case of dematerialized securities, such as stock-brokers, needs to be supervised as they have the ability of operating the market.
3. Multiple controlling frameworks have to be followed, including the Depositories Act, Guidelines and the various By-Laws of various depositories.
4. Additionally, contracts are entered at various levels in the process of dematerialization. Investors may find the complex process.