There are many ways of investing in shares of the company. One can purchase the shares directly from stock market or can apply for Initial Public Offer (IPO) . Relatives, friends or a third party can also transfer the shares to you at a mutually agreed price
Before the digital era, investors used to buy shares from the company and stock market by executing manual documents and getting share certificate registered under their name . This used to take few days and was a time consuming process. It comes with issues like delay, lost, theft and keeping the share certificates under safe custody
Demat account eliminates all these issues and comes with the convenience to operate the account without executing manual documents each time you purchase shares. Moreover SEBI has made it mandatory that shares can be transferred in demat form only.
The word Demat has been derived from “Dematerialization”. Demat account is an account for holding shares and securities. Demat account is like your bank account. In bank account, we hold money whereas in Demat account we hold shares. Demat account will show all the transactions of sale, purchase and transfers done during a particular period. Balance of holdings can also be viewed online.
Therefore in Demat account, shares are held in demat form and not in physical form. The investor will be beneficial owner of these shares. Any bonus shares, right shares will come to Demat account. Physical share certificates will not be given for shares held in Demat account.
Investor will get statement of Demat account just like statement of saving bank account.
Physical shares certificates can be converted into demat form. This process is called Dematerialisation.
Policies of the Government are moving towards having all the financial assets in Demat form. Therefore it is better to open Demat account for investment in shares, mutual funds rather than having them in physical form