What is a demat account?
Demat is a short form of the word dematerialization, which refers to the process of converting securities into an electronic form. Before the introduction of the Demat account in 1996, traders had to deal with the inconvenience of using physical copies of share certificates that had to be verified at each point of transaction. Trading was tedious and a slow process owing to the cumbersome process of managing securities. With the introduction of the demat account, these problems were eliminated to a great extent. A Demat account holds all your securities, stocks, shares, bonds, etc. in an electronic format.
What is dematerialisation?
The process of dematerialization involves transferring physical share certificates into electronic form, which is simpler to maintain and available from anywhere in the globe. To be an individual who wishes to trade online, he/she must open a demat account with a Depository Participant (DP). Dematerialization aims to make owning physical share certificates unnecessary for investors while promoting easy tracking and monitoring of holdings.
Demat has fastened the entire process and has stored security certificates in digital format, which eventually helped transform the formerly time-consuming and inconvenient process of issuing share certificates. You can convert paper certificates into digital format once your Demat account is operational by submitting all of your physical securities and a Dematerialisation Request Form (DRF). When you surrender your share certificates, you will get an acknowledgment slip. This is how dematerialization functions.
Importance of Demat Account
A Demat account is important because:
- It is a digitally safe method of holding securities
- It eliminates theft of physical certificates, counterfeiting, loss, and damage
- It enables quick share transfers
- It gets rid of pointless paperwork
- It is easier and quicker to open a Demat account
- It simplifies and expedites the share trading procedure