In 2018 alone, investors opened more than 4 million Demat accounts across India. This mammoth shift towards the stock market from years of investing in traditional assets is indicative of a positive trend. As more and more investors are gaining access to online knowledge platforms and new forms of investments, they are increasingly becoming aware of better investment opportunities. Here, it can help to know that the Government of India has been mostly responsible for promoting the shift through its demonetization initiative introduced in 2016.
Let’s look into the reasons why the Government Of India is encouraging investors to move to dematerialized or Demat accounts.
In 1996, the enacted Depositories Act ordained the development and regulation of authorized institutions known as depositories. These institutions would be responsible for holding dematerialized accounts of traders. At first, one could trade in the stock market by transferring physical share certificates of a company issuing the share. However, this system was rife with various hazards such as theft, fraud, certificate damage, or misplacing share certificates. With the development of online trading, all these hazards have now been put behind.
Reputed broking firms such as Kotak Securities offer Demat account opening services for all kinds of investors. Retail customers can engage broking forms to open a Demat account by registering online and filling of your application forms. To begin the process of trading in the stock market, the investor must also complete the KYC requirements.
An investor can obtain a seamless trading experience through a Demat account as all transactions are settled and enabled online. The Government of India has primarily been responsible for backing the move to Demat accounts due to the numerous benefits offered by online trading.
In June 2018, the regulations concerning dematerialized were further modified by the Securities and Exchange Board of India [SEBI]. According to the Listing Obligations and Disclosure Requirements [LODR], transferring, transmitting and sale request of shares can only be done if the shares are held in a dematerialized form with a depository.
Let’s consider the various benefits of opening an online Demat account.
- Ease of use – Retail investors can conveniently invest in shares to a Demat account. The user interface is easy to use, convenient and straightforward even for a beginner. One can register for a Demat account opening online through a broking services firm.
- Instantaneous transfer – Since trading takes place electronically, immediate transfer is possible. A speedy transfer is convenient for buyers and sellers of shares. Through this, buyers can receive their shares instantly while sellers obtain the price immediately.
- Real-time clearance – Through a Demat account, all parties receive an instant and real-time settlement of trading transactions. The entire procedure is transparent, seamless and systematic with certified intermediaries that conduct all manners of trade.
- Minimal documentation and paperwork – Formerly, physical trading of shares would involve a great deal of documentation for all parties involved. To conduct any form of transfer or sale, physical share certificates and ancillary paperwork were imperative. Through a Demat account opening, investors no longer need to maintain physical papers or files to trade in shares.
- Eliminating the ‘lot’ system – Earlier, there was a mandate to go through a ‘lot’ system to transfer shares. For instance, shares of a particular company could be sold in a lot size of 100 units only. Today, an investor can sell or purchase a single share thanks to his or her Demat account.
Conclusion
In addition to the points mentioned above, the Government of India has encouraged the switch to Demat accounts by eradicating stamp duty, boosting safety and facilitating ease of use for traders to operate from anywhere. Given the initiative of financial inclusion, investors across towns and cities can now invest in the share markets through Internet and mobile penetration.