Every sector has been digitised over the last decade. The same goes for the financial industry. We have advanced trading platforms, Demat accounts, and other resources to indulge in trading. In today’s digital era, we can buy and sell financial securities without moving an inch. Moreover, you can connect with stockbrokers and other investors online. However, the same was not the case with traders in the past. Before 1996, traders used to carry physical certificates of securities they bought. Things became easier for traders after Demat (Dematerialisation) accounts were launched in India in 1996. Let us understand the concept of dematerialisation and its significance for traders.
Demystifying the concept of Dematerialisation
Before 1996, traders in India used to store physical certificates of securities they bought. The concept of dematerialisation came in 1996 and solved this problem. With dematerialisation, traders can convert physical securities like stocks and bonds into digital format. It means you can say goodbye to physical certificates once and for all. With dematerialisation, traders do not have to worry about theft or misplacing documents. Before dematerialisation existed, the transfer of securities was cumbersome and time taking. Since dematerialisation converts securities into electronic format, they can be easily transferred. SEBI made life easier for traders with the launch of dematerialisation. However, traders need a few resources to enjoy the benefits of dematerialisation.
Traders will need a Demat account to convert financial securities into digital format. A stockbroker in India will help open a new dematerialisation account. Once you have the account, financial securities will be automatically converted into electronic form and stored. Securities bought via your trading account will be transferred directly to the linked dematerialisation account. You might have some physical certificates of securities purchased in the past. You can submit a request to your stockbroker to convert those physical certificates into electronic securities. They can be easily transferred or sold once they are converted into electronic format. Traders will pay account opening, dematerialisation, maintenance, and other charges. Dematerialisation accounts have completely revolutionised the trading scenario in India since their inception.
Pros of dematerialisation in India
Now that you understand the concept of dematerialisation, here are the benefits of Demat accounts:
Enhanced safety for securities
With dematerialisation, you don’t have to worry about theft or damage. Your securities will be stored safely within a dematerialisation account. Whether you want to hold securities for days or years, a dematerialisation account will help you. Physical certificates can get damaged or misplaced, which is not the case with dematerialisation accounts. Not to forget, your securities are saved from forgery risks. Over the years, forgery cases related to physical securities certificates have been reported.
Easy transfer of securities
With dematerialisation, traders can easily transfer securities from one account to another. Also, they can sell their securities on stock exchanges easily. Dematerialisation also simplifies the process of transfer during inheritance. The settlement process for physical securities is lengthier. With digital securities, traders can settle trades in real-time. Not to forget, they can benefit from short-selling or day trading with seamless transfer of securities.
Lower costs
Physical certificates of securities come with additional costs. For example, traders will pay for printing and storing physical certificates, which is not needed in this digital era. With a dematerialisation account, these additional costs can be avoided. However, traders will pay maintenance charges to the respective stockbroker for keeping Demat accounts active. Reputed stockbrokers allow traders to open dematerialisation accounts for free and pay minimal maintenance charges.
Enhanced accessibility and transparency
Traders can view their securities anytime with a dematerialisation account. It helps with portfolio diversification and trade monitoring. Also, securities are easily accessible, as traders can sell/transfer them anytime.
Quick corporate actions
With a dematerialisation account, traders can execute corporate actions faster. For example, dividends can be accessed easily with a dematerialisation account. The same goes for rights issues, bonuses, and other corporate actions.
In a nutshell
Dematerialisation can free traders from carrying physical certificates all the time. You can trust a stockbroker to enjoy the benefits of Demat accounts. Don’t forget to choose a reputed stockbroker with minimal dematerialisation account charges and a great reputation. Start using a dematerialisation account to your benefit now!
Summary
Dematerialisation is the practice of converting physical securities into digital format. Traders must open a dematerialisation account with a stockbroker to convert securities into electronic format. With dematerialisation, traders can enjoy enhanced transferability, accessibility, and safety. Also, corporate actions are easily executed with dematerialisation accounts. So choose your dematerialisation account right away!
