We prefer holding documents in digital form because it becomes safer, convenient, and easy to hold them. Similarly, you can store your investments in digital form using a demat account. Dematerialisation means converting physical shares into electronic form. You can hold all your shares in an electronic form in your demat account as it facilitates an easier and convenient trading process.
Dematerialisation of financial securities is essential because physical shares can be stolen, lost, or misused by fraudsters. When physical shares are converted into electronic form, it becomes easier to track, trade, and monitor them. Dematerialised securities are also safe from thefts and damage.
Benefits of Dematerialisation
The top benefits of a demat account i.e. dematerialisation are explained below:
Convenient to carry out transactions
You don’t have to visit the stock market or the broker’s firm to settle transactions if you have a demat account. A demat account plays a pivotal role in carrying out the buy and sell transactions placed using a trading account. It is possible to execute these transactions from your smartphone or laptop easily. As a result, dematerialised shares make trading a lot more convenient.
Safety of transactions
All the transactions carried out via a demat account are safe because the demat account providers encrypt the data. Also, most demat account providers ask for additional authorization from you especially when it comes to selling and buying shares.
For example, while buying and selling shares, you will be asked to enter the TPIN (Transaction Personal Identification Number) that is sent to your registered email address. In addition to TPIN, some brokers also ask to confirm the transaction using an OTP (One Time Password) sent on your registered mobile number.
Helps to buy and sell shares in odd lots
Before the advent of demat accounts, investors had to purchase stocks in bulk. However, due to dematerialisation it is easy to track each and every share. Therefore, buying and selling even one share is possible if you open a demat account.
Most brokers even provide a free demat account opening facility to encourage more people to invest in the stock market.
Eliminates the risk of thefts & damages
Physical shares are vulnerable to thefts, damage, and misuse. This is not the case with electronic shares that are safely stored in your demat account.
Allows easy nomination facility
You can nominate someone to handle your demat account on your behalf. It allows you to process the transactions by using a nominee when you are unable to complete them by yourself. You can also appoint a nominee who will be entitled to receive all your investments held in your demat account after you.
Negates the need of paperwork
A demat account negates the need for physical documentation work while buying or selling shares. As shares are available in electronic form, they can be traded without any documents. It makes the process simpler for the traders. On the other hand, brokerage companies don’t have to maintain the documents of each and every customer which makes administrative work easier for them.
Provides loan facility
You can obtain a loan against the securities that are available in dematerialised form in your demat account. The securities or shares in your demat account act as collateral against which you can receive the loan amount.
Facilitates easy monitoring of shares
Monitoring your investment portfolio becomes easy when you have a demat account. Online access to the demat account allows you to keep a track of your holdings using a smartphone or laptop. Many brokers also provide portfolio performance tracking tools and charts to their demat account holders. You can check your asset allocation, industry concentration, and other parameters of your investments by using these intuitive tools and charts.
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Allows you to hold multiple instruments
Financial instruments like stocks, ETFs, mutual funds, corporate bonds, government securities, etc. can be held securely in a demat account. Therefore, it acts like a unified platform for all your financial holdings.
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