A dematerialized account, also known as a demat account provides the facility of holding shares and securities in an electronic format. Shares are bought and held in a demat account during online trading. This facilitates easy trade for users. A demat account holds all the investments made by an individual in shares, government securities, exchange traded funds, bonds and mutual funds, all in one place. Stocks in the demat account remain in dematerialized form. Dematerialization is the process of converting physical shares into electronic format.
It is difficult to hold shares in physical forms because it involves a lot of paperwork, long processes and risk of fake shares. Therefore, for seamless trading and investing, a demat account must be used to trade.
Benefits of Demat:
- Easy and convenient way to hold securities.
- Immediate transfer of security.
- Safer than paper-shares.
- Reduced transaction cost.
- No "odd lot" problem: even one share can be sold.
- A single demat account can hold investments in both equity and debt instruments.
- Traders can work from anywhere (e.g. even from home).
- Significantly reduces the brokerage charges.
- Eliminates the risks involved with physical certificates like forgery, loss, theft, damage of certificates etc.
- There is no paperwork involved, which has greatly reduced the time required to clear each transaction.
- Traders don’t need to visit the stock market again and again, as they can operate from anywhere as the system has become electronic.
- Shares that arise out of splitting, mergers, consolidations are automatically credited in the Demat account.