Advantages

The benefits of demat account are as follows:

• • Easy and convenient way to hold securities
  • Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
  • Reduced paperwork for transfer of securities.
  • Reduced transaction cost
  • No “odd lot” problem: even one share can be sold
  • Change in address recorded with a depository participant gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them separately.
  • Transmission of securities is done by the depository participant, eliminating the need for notifying companies.
  • Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc.
  • A single demat account can hold investments in both equity and debt instruments.
  • Traders can work from anywhere (e.g. even from home).

Benefits to the Company

The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for communication and timely service to shareholders and investors.

Benefits to the Investor

The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.

Benefits to Brokers

It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery or bad delivery. It increases overall trading and profitability. It increases confidence in their investors.

Disadvantages

• Trading in securities may become uncontrolled in case of dematerialized securities.
• It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors.
• For dematerialized securities, the role of key market players such as stock-brokers needs to be supervised as they have the capability of manipulating the market.
• Multiple regulatory frameworks have to be conformed to, including the Depositories Act, Regulations and the various By-Laws By-law of various depositories.
• Agreements are entered at various levels in the process of dematerialization. These may cause worries to the investor desirous of simplicity.
• There is no provision to close a demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges, etc.
• After liquidating the holdings, many Indian investors don’t close their depository participant account. They are unaware that depository participants charge even on dormant accounts.