One has been hearing a lot about the IPO scam and the benami demat accounts. In the context of what had been going on in the capital market, it is imperative for first time investors to understand what is ‘dematerialisation’ and what one means by demat shares. Virtually no transaction in the share market is possible now without opening a Demat account.
What are Demat shares?
Demat shares are an electronic record of holdings by an investor, who wants to buy and sell shares in the bourses. There is no physical share certificate involved in the Demat system and hence, no need to find a safe place to keep it under lock and key.
Why Demat shares?
The convenience is that physical share certificates can get lost, while in a Demat account, certificates are digitised and can get lost only if improperly digitised by the operator or by sheer fraud. A demat account is ideal for small investors, as it enables them to buy even shares with high rupee prices.
How to open a Demat account
An investor would have to approach a depository participant (DP), who is usually a broker or a banker, to open an account. One cannot directly approach the depository, and only DPs can.
What if you want share certs?
If, for some reason, the urge to hold shares in physical form overwhelms you, you can go for rematerialisation, where the shares will be converted from the electronic to paper form. In that case, your DP will forward your rematerialisation request to the depository. The depository, in turn, will inform the registrar, who will print the certificates, and dispatch them to you.
What if you want share certs?
If, for some reason, the urge to hold shares in physical form overwhelms you, you can go for rematerialisation, where the shares will be converted from the electronic to paper form. In that case, your DP will forward your rematerialisation request to the depository. The depository, in turn, will inform the registrar, who will print the certificates, and dispatch them to you.
One advice: Choose your broker and the depository participant very carefully.