Technology has brought about a drastic change in our everyday lives. The stock markets too have not been left untouched by the change. In 1875, the Bombay Stock Exchange was founded with an open outcry floor trading exchange. Traders would stand on the floor and shout prices of stocks for buying or selling. Then, money would be exchanged for physical receipts of the shares called the certificate. This led to a great amount of paperwork. Even the settlements of trade agreements took time because of the need to deliver the share certificates.
Much has changed since.
In 1996, dematerialization was embraced. Dematerialization is the process by which physical share certificates held by an investor are converted into an equivalent number of securities in electronic form and credited into the investor’s demat account.
Dematerialization is not just for shares, but also for debt instruments like bonds. Now, you can hold all your investments in a single account.
Dematerialization has also eliminated the risks of fake shares, thefts, deliveries gone wrong, and so on, and reduced the paperwork involved. Time of delivery has also reduced drastically. Once your trade is approved, the securities are automatically credited to your account. This applies to other company-related activities like stock splits, stock bonuses, and so on.
Earlier, when you transferred the securities, you incurred extra costs due to the stamp duty. This is not a problem with the demat form.
Dematerialization is not just for shares, but also for debt instruments like bonds. Now, you can hold all your investments in a single account.
Earlier, shares were transacted in lots. A single or odd number of securities could not be transacted. This problem is now eliminated.
Paper certificates are vulnerable to tears and damage. In contrast, the dematerialized or demat format is a safe and convenient way to hold securities. You also have a nomination facility, whereby you can facilitate a transfer of shares in the event of your demise.
A demat is to your shares what a bank account is to your money. Simply put, it is the account that holds all your shares in electronic or dematerialized form. Like the bank account, a demat account holds the certificates of your financial instruments like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs). You cannot trade in the stock market without a demat account.
UNDERSTAND HOW THE DEMAT ACCOUNT WORKS:
There are two depositories in India – the CDSL and NSDL. They hold all the demat accounts. The central depository holds details of your shareholding on your behalf like banks.
Access to the central depository is provided by the Depository Participants or DPs. They act as the intermediary between the central depository and the investor. DPs could be banks, brokers or financial institutions that are empowered to offer demat services. Kotak Securities is one such Depository Participant (DP). You open a demat account or a Beneficial Owner (BO) accounts with a DP, who will provide you a unique access to the central depository.
Shares are thus, a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in
Each demat account has a unique number for identification purposes. This is the number you need to provide for transactions. The number will help the exchange and companies identify you and credit the shares in your account.
The demat account holds all your securities. So, whenever you check your account, you can see your portfolio holding and its details. These are updated automatically every time you conduct a transaction – be is buying or selling a security.
Here is a broad list of documents that can be used as proofs:
You need to submit proof of identity and address along with a passport size photograph and the account opening form. Only photocopies of the documents are required for submission, but originals are also required for verification.
PAN card, voter's ID, passport, driver's license, bank attestation, IT returns, electricity bill, telephone bill, ID cards with applicant's photo issued by the central or state government and its departments, statutory or regulatory authorities, public sector\undertakings (PSUs), scheduled commercial banks, public financial institutions, colleges affiliated to universities, or professional bodies such as ICAI, ICWAI, ICSI, bar council etc.
Ration card, passport, voter ID card, driving license, bank passbook or bank statement, verified copies of electricity bills, residence telephone bills, leave and license agreement or agreement for sale, self-declaration by High Court or Supreme Court judges, identity card or a document with address issued by the central or state government and its departments, statutory or regulatory authorities, public sector undertakings (PSUs), scheduled commercial banks, public financial institutions, colleges affiliated to universities and professional bodies such as ICAI, ICWAI, Bar Council etc.
All you need to do is fill in the Demat Request Form (DRM), fill in the appropriate details of the share certificates you hold, and submit it with the physical share receipt. Every share certificate needs a separate DRM form. Once the form is approved, your demat account will automatically be updated to reflect your newly dematerialized shares.
Now that you know all about dematerialization and demat accounts, learn how to open a demat account Click here.
If you are looking to open a demat account with Kotak Securities, Click here.
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That by submitting the above mentioned details, you are authorising Kotak Securities & its sub-brokers & agents to call you and send promotional communication even though you may be registered under DNC.