order to mitigate the risks associated with share trading in paper format, dematerialisation concept was introduced in Indian Financial Market. Dematerialisation or Demat in short is the process through which an investor’s physical share certificate gets converted to electronic format which is maintained in an account with the Depository Participant.
Advantages of Demat
Dealing in demat format is beneficial for investors, brokers and companies alike. It reduces the risk of holding shares in physical format from investor’s perspective. It’s beneficial for brokers as it reduces the risk of delayed settlement and enhances profit because of increased participation.
From share issuing company’s perspective, issuance in demat format reduces the cost of new issue as papers are not involved. Efficiency and timeliness of the issue is also maintained while companies deal in demat format.
There are a lot of other benefits, but let’s focus on benefits with respect to common investor and the same are listed below.
• Demat format reduces the risk of bad deliveries
• Time and money is saved as you are not dealing in paper now. You need not go to the notary, broker for taking delivery or submitting the share certificate
• Liquidity is very high in case of demat format as whole process in automated.
• All the benefits of corporate action like bonus, stock split, rights etc are managed through the depository leading to elimination of transit losses
• Interest on loan against demat shares are less as compared to physical shares
• Investors save stamp duty while transferring shares in demat format.
• One needs to pay less brokerage in case of demat shares
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