Benefits of Dematerialisation

Benefits of Dematerialisation

Dematerialisation is the process by which your physical shares or securities are transferred to a digital or electronically processed form. The main aim of this Demat account is to simplify the process of buying, selling, transferring and holding shares while at the same time making them more cost-efficient and reliable. Instead of physical certificates, all your securities are stored in electronic form. To understand the benefits of dematerialisation in a detailed way, read this article below.

What are the Benefits of Dematerialisation?

There are several benefits of dematerialisation of shares. Here, a few of the key advantages of dematerialisation of shares are summarised.

  1. The biggest advantage of demat is the ease of transacting, and that too on an electronic platform. It is not essential to be physically present at the broker’s place or to give physical debit instruction slips (DIS) to settle a transaction. Above all, the convenience is about access to the demat details. You can access the demat holdings and demat transactions at any time with valuation on a real-time basis. The shares are fungible. You can convert the physical form to demat form, or you can convert it back to physical form, which is called remat.
  2. The online linking of Demat accounts, trading accounts and bank accounts makes it a seamless experience. The shares bought are automatically credited to your Demat account on a T+2 basis. On the sale of shares, the shares are debited to the Demat account on T+1 and T+2 dates. The funds are credited to your bank account.
  3. There are a lot of people who were initially sceptical about holding large portfolios in electronic form. However, safety was much higher in demat form than in physical form. Using a demat gateway to transact and clear and settle transactions is secure and also the safest way. Most of the risks in physical holdings, like theft, damage, loss of share certificates, mutilation, duplicate certificates, and fraud, are all substantially eliminated in the demat mode of holding and transacting.
  4. You can make your trading life a lot easier by Appointing A Nominee. Now, it is so critical that if you don’t want to appoint a nominee, then you need to give an undertaking to the DP saying that you don’t intend to appoint the nominee. The Demat account even permits the right to grant the right to operate your Demat account to the nominee in your absence. That way, you can also carry out transactions in your Demat account with the help of a nominee. Passing on the Demat Benefits later is also much easier with a nominee.
  5. Anything that is paperless saves cost and time, and that is something Demat account does in abundance. It almost obviates the need for paper. Since the Demat account is about holding shares or securities in electronic form, the need for paper is just not there. Everything from statements of holdings to instructions to statements of transactions are all in electronic form only. Even money moves around in digital form only. From the perspective of companies issuing shares, a Demat account has proved to be very useful in reducing their administrative costs and hassles. Even for the broker, demat comes with a substantially lower cost of operating and staffing for bad delivery rectifying.
  6. How do you monetise your Demat account. Simple, you can take a loan against demat or LAS, as it is popularly called. In fact, demat is a lot simpler if you are holding shares in demat form. You can just offer the shares as collateral, and the DP marks the shares as pledged so the holder cannot sell them. The funds can come to you in less than an hour if you have an online trading and Demat account and a bank account linked to with the same group.
  7. Demat accounts, being electronic, are so much easier to monitor. With a Demat account, you can monitor your portfolio from the comfort of your home, office or anywhere across the globe. You can even get your entire demat details on your smartphone with the downloaded trading and demat app. The flexibility to monitor portfolio performance increases the chances of making more profits, as you are likely to be more sensitive to shifts in the marketplace.
  8. It is so much simpler to receive corporate actions like dividends, bonuses, rights, stock splits, etc, with demat. It is automatically credited, and in the case of dividends, it directly goes into your linked bank account.
  9. If you have traded in the physical mode, you would be familiar with the problem of odd lots, as you could not trade stocks below a quantity. In the case of smaller quantities, odd lots had to be traded at a discount consolidated by brokers. With the introduction of the Demat account, the problem of odd lots is eliminated. Now, can you purchase or sell any desired quantity? You can buy as little as one share and sell as little as one share, and nothing stops you from doing that.
  10. Remember that the Demat account is very flexible and can hold most of your financial securities other than equities. For instance, you can hold debt instruments like government securities, gold bonds, RBI bonds, corporate bonds, debentures, etc. You can also hold index ETFs and gold ETFs in the Demat account. Even closed-ended and open-ended mutual funds (to the extent participating) can be held in the Demat account. It can serve as your net worth statement across asset classes.

Clearly, a Demat account comes with a plethora of benefits and the differences would be most obvious to those who have lived through the hassles of physical allotments, physical transfers and physical deliveries. Demat brings about simplicity, convenience and a huge degree of safety. If Indian capital markets have become more stable, secure and sustainable, demat has played a big role in that.

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Table of Content

  1. What are the Benefits of Dematerialisation?
  2. Drawbacks of Dematerialisation of Shares

Drawbacks of Dematerialisation of Shares

The drawbacks of dematerialisation are as follows.

  1. Liquidity has increased, but markets have been volatile as a result of the ease of share trading through dematerialisation
  2. For people who do not know a thing about technology, it may be hard to manage electronically controlled Demat accounts. 
  3. As the shares are held in a central depository system, dematerialisation reduces the investor's control over their shareholdings. That may make it difficult for institutional investors to vote or take part in shareholder meetings.

 

Conclusion

When investing in short or long-term bonds, the stock market is one of the safest places. As we covered the benefits of dematerialisation, you now know why electronic trading is important. In combination with good tracking, they offer a high level of security to investors. An additional layer of security is added to share trading by dematerialising securities. You do not just legalise ownership of your company. You also facilitate the buying and selling of securities by using an electronic conversion of share certificates. In addition, dematerialisation is an easy process and does not require much documentation.

FAQs on the Benefits of Dematerialisation of Shares

The physical mode of placing securities has a number of disadvantages. It takes more time to issue new securities. Paper certificates are vulnerable to theft, tearing, loss, damage, misplacing, etc. They're providing certificates that are torn, fake, etc.

A dematerialisation of the shares is required to be carried out in order to conduct transactions on India's financial market.

It is possible to dematerialise and hold bonds, whether issued by the state or private bodies, in a depositary account. In addition, the dematerialisation of securities can also be granted to holders of unconvertible debentures issued by companies.