The concept of Demat accounts is rather straightforward. It is an electronic way to hold all of one’s investments, such as bonds, shares, and mutual funds in one place, while also providing a safe and convenient platform to keep track of them.
There are multiple reasons why the usage of Demat account has been promoted aggressively since its inception. The rationale behind it is mentioned as under:
Having understood the meaning and objectives of Demat accounts, let us now take a look at certain concepts and processes associated with such accounts.
Individuals can transfer their holdings from an existing Demat account to another institution without incurring any additional charges. If they opt for this choice, the Beneficiary Owners’ (BO) accounts at both, the transferor Depository Participant (DP), and transferee DP is identical. If they wish to transfer a joint Demat account, they will have to open the new one with the same names.
A depository is a centralised location where all electronic securities are held. India has two such depositories, namely the Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL). Under the Depositories Act, individuals can avail these services through one of the DPs.
In this process, physical certificates are converted to electronic securities. All transactions are now executed electronically, which makes it mandatory for investors to follow suit.
After submitting the certificate along with the Demat Request Form (DRF), the DP will verify the details before forwarding them to the Company or Registrar. The dematerialisation procedure is completed in approximately 30 days.
On receipt of the DRF and physical securities, the Registrar or Company processes the request. On successful completion, an equal number of electronic securities is credited to the holders’ Demat accounts. If the request is rejected, investors need to contact the DP and seek assistance for the resubmission of a fresh DRF.
If the investment is held in a joint name of a deceased investor, surviving holder/s must submit the certificates, the death certificate, and the Transmission cum Demat form to the DP. The names of all surviving holder/s must match the details on the Demat account.
If the names on the Demat account do not match the names on the physical certificates, a Transposition cum Demat form must be submitted to the DP to convert these into an electronic form.
The electronic holdings can be reconverted to physical certificates by submitting the Remat Request Form (RRF). The RRF must be signed by all holders, verified by the DP and then submitted to the Company or Registrar.
Demat account holders can freeze their accounts by submitting a request to the DP. To defreeze the accounts, holders must submit a request in the appropriate format as required by the DP.
A request form signed by all holders must be submitted. All holdings in the account must be transferred prior to closure of the Demat account. In the case of pending dematerialisation requests or corporate actions, Demat account closure is not possible.
With an understanding of the various concepts and the process of how a Demat account works, users can start financial planning through equity investing.