What is a demat account?
A demat (or dematerialized) account is an Indian electronic shares and securities account. In India an investor does not take physical possession of certificates, which is the protocol everywhere else. A demat account would be opened by an investor whilst registering with an investment broker.
Where have you heard about demat accounts?
India first began this demat system in 1996 and it soon began to eliminate all of the risk associated with paper certificates. It also made the process, sale and transfer of shares significantly easier.
What you need to know about demat accounts.
There are pros and cons to the demat account system. Some of the pros include no stamp charge and, as everything is held electronically, costs are lower than that of a physical segment and there is no risk of loss of a certificate due to theft, fire or general mutilation. Some of the cons include a charge on the account even after assets have been liquidated and the account lies dormant. There is also the monitoring of key market movers such as stock brokers, due to their ability to effect the market with manipulation.
Find out more about demat accounts.
To find out more about demat accounts, take a look at our page on capital gains.