What is a Demat Account?

This is an electronic account used to maintain shares, stocks, bonds etc. in stock market. Demat is the short form for ‘dematerialization’ which means demat replaces all shares which were traditionally stored in paper format into electronic format. These dematerialized shares of all shareholders are maintained in a Demat Account.

This system was introduced in 1996 according the depository act. Before computerization share market depended a lot on pen and paper method. Now everything is done in a split second with the help of Internet technology and computer.

The investor basically opens a demat account which can be done either online by the user or with the help of share broker. Each account carries two sets of password, one for account login and another for transactions. Each account has a unique number, which serves as the identity of the user. In every transaction this number is also quoted so that authorities can have a direct link with the investor.

Benefits

Fraudulence can be avoided- Since the investor is working directly with the account the chance for fraudulence is highly avoided. There is no physical certificates or paper used in demat account, therefore forgery cannot occur. Thus a trustworthy platform for trade is available for the investor
Fast transaction- All transactions are computer controlled, thus there is no delay happening between transactions. The investor gets a real time report regarding all details of transaction.
Comparably lesser transaction cost required- Since there is nothing to be physically transported when compared with early trading scenario.
All physical delays are ruled out
Loss of certificates, signature mismatch etc. are some problems with physical transaction. Here the computerization rules out the scope for such problems.
No stamp duty- usually all share transaction need to pay 0.5% stamp duty which is not required while using the demat account.
Trader can work even from home- since there everything is connected via internet the trader can work from home.
Safer mode of transaction since everything is password locked
A single demat account is enough for both equity and debt trading.
For the company this account benefits by avoiding the paperwork cost and distribution cost.
For the broker easy settlements are possible because there is no delay in transaction

Depository Participant

A depository participant (DP) is a link that works between the investor and stock exchange. They provide the online support for the demat account, by providing a portal to setup the individual account. They can be private institutions, banks, brokers etc.