Opening of a demat account is compulsory if you want to buy and sell shares in India through the stock exchanges. Shares held by way of certificates can be bought and sold. If you are an existing or a new investor opening a demat account is almost compulsory. However, while there are just too many documents and signatures that are involved, it is worth opening a demat account. It is just a one time procedure, especially to meet know your customer guidelines. Here are a few advantages of opening a demat account.
No Chance of Theft and Robbery Demat Account
There is no chance of your certificates being stolen and later forged as the shares are held in the electronic form. This eliminates the risk posed earlier, when shares were held in the physical format. This is one of the biggest advantages of opening a demat account at the very earliest.
Shares Can be Transferred Immediately
Earlier, shares had to be sent to the registrar or the company to get the shares transferred on an individual's name. This took months and sometimes the certificates were also lost. This cannot happen today in the demat form and shares are transferred immediately.
No Stamp Duty on Transfer of Securities
While one pays a security transaction tax, there is no need to physically purchase share transfer stamps and paste them below the certificate as was the case earlier. The process when there was no demat was cumbersome and often one had to visit the stock exchange to purchase share transfer stamps.
Can Sell As Low As One Share
Earlier, individual shareholders could not sell share with odd lots. For example, it was very difficult to sell 33 shares and sizes that were odd and were not in marketable lots like 50, 100, 200 etc. This is now eliminated and one can sell any lot as the market lot is now 1 share.
You Can Now Nominate
You can now nominate individuals when opening a demat account. That was not possible earlier when there were share certificates. You had to have a joint holder. Check with your depository participant on the procedure to add a nominee in case you have not done so.
Operate With A Single Account
You need not open a separate account for buying debt like bonds, NCDs, Tax Free bonds etc. Apart from some debt instruments like bank and company fixed deposits, most of the instruments can be held in a single demat account.
Bonus and Rights Shares Can Be Credited Instantly
Bonus and rights shares can also be immediately credited and there is no need to wait for the certificate.
Advantages of a Demat Account
There is a reduction in other costs like spending on registered AD to send the certificates that was a practice earlier.