Dematerialization of securities means that all deposits, be it a share certificate, mutual fund holdings, unit-linked certificates, or futures or options, are held electronically. Securities Exchange Board of India (SEBI) has made it mandatory, post-December 5, 2018, that all share transfers be made in the Demat form only. No physical share certificates will be allowed to be transferred. When held in the Demat form, shares and other securities are normally held in National Stock Depository Limited (NSDL) or Central Depository Services Limited (CDSL), the two depository agencies created to trade in all shares and securities on the National Stock Exchange and the Bombay Stock Exchange.
There are three types of accounts available: regular accounts for residents and repatriable and non-repatriable accounts for non-residents.
Advantages of opening a Demat account online include the following:
- Transaction of the shares happens smoothly, seamlessly, without any manual intervention. When shares are in electronic form, there are no problems providing delivery slips, worrying about signature mismatches, etc. All your shareholdings are transferred to your online Demat account on your investing platform.
- There is no fear of theft, loss, mutilation, or robbery of shares when they are in the electronic form in your Demat account. You can check your shares and other securities in your holding statement as well.
- Safety from fraud, forgery, and someone trying to impersonate you to get hold of your equity holdings is assured.
- Your Demat account facilitates transactions in all other types of securities, including bonds, mutual funds, equity-linked savings schemes, gold exchange-traded funds, and commodity futures. You can buy, sell and make off-market transactions without going through the cumbersome manual delivery slips, physically going to your brokers’ office, facing rejection by the registrars due to signature mismatches, etc.
- You don’t even need to be in India to transact your shares. You can transact your shares from anywhere in the world with a computer, laptop, or even your stock trading app.
- Bonuses, stock splits, and dividends get credited to your online Demat account or your online bank account without the need for physical share certificates.
- Brokers find it easy to handle customer transactions through an online Demat account. Foreign institutional investors also find the ease of doing transactions in the Indian equity markets akin to international equity markets in developed countries.
- Appointment of nominees and transfer of shares from one account to another become seamless. When physical share certificates were prevalent, appointing nominees was tough. A nominee has to be appointed for the entire Demat account and all the shares therein.
- You can use your share lodged in your Demat account online as security for a bank or financial institution loan. The process is very smooth as the bank places a lien on your security holdings in your Demat account online to grant the loan.
- Transaction charges and duties, including stamp duties and other handling charges, are reduced to the minimum when your securities and equities are held in your Demat account.
- It is time-saving and seamless when you transact your shares and other securities held in your Demat account. On the T+2 day, when you sell your shares, your Demat account is debited for the securities sold, which are then transferred to the seller.
- The Central Board of Direct Taxes has exempted tax deduction at source on securities and bonds held in a Demat account online.