How holding a demat account can benefit you

Only 5% of financial wealth in Indian families goes into financial products, with a part of this going into equities directly or via mutual funds.

Dematerialisation of share (demat) has been a silent revolution in India. Just as your money lies in a bank and you have a passbook and internet access to view your transactions and balance, the concept of dematerialization is similar. It has made share trading and holding simpler and safer for all. Just like a bank, the details are securely stored with depositories and the data is adequately backed up in view of its value and sensitivity. Therefore the user is free of worries like fire and theft.

Demat has also made ‘bad delivery’ a thing of the past and also facilitated quick electronic delivery. Further, corporate actions like bonus etc are automatically taken care of by the system and credited to the account on the due date without manual intervention. Finally, one can hold shares, ETFs, bonds, MFs in the demat account and the
list is expanding every year.

The downside, of course, is that because this is technology driven some investors can get misled. Besides, unlike paper shares, there is a direct periodic holding cost payable to the demat service provider. But in today’s world, technology has to be befriended in all spheres and the benefits are many. Incidentally, even issuing companies benefit with lower printing and distribution costs and efficient service to investors with the additional advantage of zero stamp duty. Forgery too is effectively taken care of by demat of shares.
So what will it take to double the number of demat accounts in six months? Will it lead to doubling equity penetration? Will it help in increasing wealth for our citizens? Here is a perspective.

The equity cult was created in the US with proof that over an extended period, real wealth could be created for retail investors. There have been stars like Warren Buffet but the real evidence lies in the continuous investment of American employee provident funds into equity markets, mostly with excellent returns. While our provident funds too have started putting money into equity markets, a track record will take time. So what is the best way to spread the equity cult? Of course, by increasing the number of demat accounts which can actually double within six months, will easily double equity penetration and increase the wealth of our citizens.

34 Years of Trust

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34 Years of Trust

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34 Years of Trust

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