Question

What is a demat account? How did its need arise?

Answer 1

• In the past, when an investor wanted to invest in the shares of a company, he was given a share in the physical (paper) form. This share was known as share certificate and the purchaser or the holder of the share certificate was known as share-holder.
• Along with the share form, the investors also used to fill up share transfer form. Whenever a share-holder wanted to sell a share, he had to send the original share certificates along with a filled share transfer form to the company.
• This entire procedure was lengthy and tedious. To eliminate all these difficulties, the government started the procedure of converting these physical shares and other securities in electronic form.
• The process of converting physical shares in electronic form is called dematerialization or demat in short.
• These physical securities are maintained in electronic form through computer by the depository institutions. If a person wish to covert his physical shares in electronic form then he need to open a demat account with one of the depository institution.
• Under Depository Act 1996, investors have an option to hold securities either in physical form or dematerialized form.