WHAT IS DEMATERIALIZATION?

Technology has brought about a drastic change in our everyday lives. The stock markets too have not been left untouched by the change. In 1875, the Bombay Stock Exchange was founded with an open outcry floor trading exchange. Traders would stand on the floor and shout prices of stocks for buying or selling. Then, money would be exchanged for physical receipts of the shares called the certificate. This led to a great amount of paperwork. Even the settlements of trade agreements took time because of the need to deliver the share certificates.

Much has changed since.
In 1996, dematerialization was embraced. Dematerialization is the process by which physical share certificates held by an investor are converted into an equivalent number of securities in electronic form and credited into the investor’s demat account.

BENEFITS OF DEMATERIALIZATION

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COMMON BANK:

Dematerialization is not just for shares, but also for debt instruments like bonds. Now, you can hold all your investments in a single account.

AUTOMATIC UPDATE:

Since this is a common account, you don’t have to keep giving all your details like addresses every time you transact or every time you change the details. These details are automatically made available to companies you transact with.

ODD-LOT PROBLEM:

Earlier, shares were transacted in lots. A single or odd number of securities could not be transacted. This problem is now eliminated.

DELIVERY RISKS:

Dematerialization has also eliminated the risks of fake shares, thefts, deliveries gone wrong, and so on, and reduced the paperwork involved. Time of delivery has also reduced drastically. Once your trade is approved, the securities are automatically credited to your account. This applies to other company-related activities like stock splits, stock bonuses, and so on.

COST REDUCTION:

Earlier, when you transferred the securities, you incurred extra costs due to the stamp duty. This is not a problem with the demat form.

EASY TO HOLD:

Paper certificates are vulnerable to tears and damage. In contrast, the dematerialized or demat format is a safe and convenient way to hold securities. You also have a nomination facility, whereby you can facilitate a transfer of shares in the event of your demise.

Source from: kotaksecurities.com 

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