The term Demat is known as Dematerialisation . Dematerialisation means the process in which Share Certificates and other securities in the physical form are converted into Electronic form. Demat(dematerialisation) helps in eliminating the problem of physical handling of securities. When the shares and other securites are dematerialisation their account are kept and maintained in the Demat account of Depository Participants. These Depository Participants(DP) are authorised agents to operate Demat Account. These DP acts as an agents between the investors and the company. The process of Dematerialisation takes about thirty days.
Role of Demat account:
NOW WHAT IS DEPOSITORY & IT’S FUNCTIONS:
A depository is similar to a bank. It holds shares, which belong to investors, in electronic form. The investor has to open an account with the depository, through a Depository Participant (Broker). The broker is an intermediary between the depository and the investor. In India, there are two depositories, National Securities Depository and Central Depository Services. A number of banks (HDFC Bank, ICICI Bank, SBI, and so on), brokers (Here, Sharekhan) and institutions function as DPs.
Benefits of opening Demat account
1) No worries in keeping the shares in physical forms
One of the biggest advantages is that you should not be worried that your shares would be stolen or damaged. In the electronic form shares are very safe.
2) No odd lot issues, and shares even one share can be bought and sold
You can buy and sell shares in lots of 1 in the electronic form. You cannot do that in the physical shares. how can you sell 1 share, when you have a certificate that shows 5 shares.
3) No stamp duty on transfer
Stamp duty is paid at the time of buying and selling the shares. So, you really need not go the stock exchanges and buy physical stamps as was the case earlier.
4) No transfer deed required
Like stamp duty, there is no need for a transfer deed as well.