Demat was introduced in 1996 by NSE. Demat is an account that allows the holding of shares in an electronic format. It enabled the digitization of the Indian stock trading market, enforcing better governance by SEBI. Demat accounts reduced the risks of storing, theft, damage, and malpractices by storing securities in electronic format. At the outset, the account opening process was manual and took investors several days to activate.
Nowadays, one can open a Demat account online in 5 mins. End-to-end digitization has contributed to popularizing Demat.
Indian depositories such as NSDL and CDSL provide Free Demat account services. Each intermediary has Demat account charges (varying depending upon services) and terms and conditions between a depository and a stockbroker. A Demat account holds the shares and securities (bonds, ETFs, mutual funds units, etc) in digital form. Having different roles, they work together to make online trading possible. The Demat account reflects the shares and securities the account holder is currently holding.
The Concept of Demat Account Portability in India
Apart from holding shares and securities, a Demat account can also transfer shares to another Demat account. Consolidating shares into a single Demat account makes it easy for investors to have an overall view of all their stocks and analyze the comprehensive returns on investment. This process can be done either in online mode or offline mode. Central Depository Securities Limited (CDSL) provides a feature EASIEST, through which one can transfer shares from one Demat account to another online.
Rurash being able to solve the problem of physical to Demat conversion helps in facilitating these services.
The Need for Demat Portability
The benefits of Demat portability are:
- Consolidation of multiple Demat accounts simplifies and reduces the Demat costs.
- Preferring separate Demat accounts for different activities which require transferring of shares from one account to another is also possible.
- Keeping a Demat account and trading accounts with the same broker to keep things simple is also an option. The Demat account needs to be changed if there is a change in the broker.
- Long-term shares may need to build a firewall around them. The Demat accounts need to be classified accordingly, which requires the transfer of shares from one Demat account to another.
- Whenever a user wishes to switch from one type of broker to another to save on brokerage (by hiring discount brokers or to avail of the expertise of full-service brokers), he will need to transfer the shares from one Demat account to another.
Impact of Demat portability on Stock brokers and Investors
Change your brokers, just like you do your mobile phone operators.
In the newly launched interoperability scheme, investors will soon be able to change their brokers if they are unsatisfied with their services. Presently, the investors need a no objection certificate (NoC) from their existing broker for a switch, they have to position as Nil before transferring the funds to a new broker. But now an investor will be able to transfer funds along with margins once the regulation comes into effect. It will be an awaited development and good news for investors who have been hassled by a broker and are unable to transfer funds to another firm. More improvisation from brokers will be required now. Those providing good services need not fear, but those who are lagging will have to improvise. Rurash has also realized a few other issues which investors face with brokers on a daily basis and is working for the benefit of its users.
Demat Portability and Future of Investing in India
Demat means dematerialized. A Demat account changes the physical shares into an electronic form, thus dematerializing them. These accounts serve as a safe wallet to store securities electronically. Investors need not worry about misplacing physical certificates by theft or any fraudulent stock and bond holdings exchanges. Demat accounts also eliminate the possibility of potential fake signatures on physical documents.
There has been a meteoric rise of Demat accounts in India. In 2021, the stock market saw a huge leap, with more retail investors investing in equities. According to reports, the new Demat accounts, just a little less than 1.9 crores, were opened in the period April 2021 to October 2021. Demat accounts are predicted to grow in the future as more investors are driven to invest in stocks. This is due to the growth of investment in small savings accounts has reduced over the years. The low bank interest rates do not satisfy people’s need to grow their money hence they invest elsewhere for fruitful returns.
The total number of Demat account in India has crossed 10 crores.
With Rurash’s Demat services, you can easily convert your unproductive assets into profit-yielding money instruments. RURASH is one of India’s investment management firms, providing financial solutions to augment the client’s wealth and build a legacy.