India has witnessed a record opening of Demat accounts during the period of 1st April 2017 to 31st March 2018. According to the reports, 3.76 million fresh or new Demat accounts were opened during this period beating the previous record of 3 million during 2007-08, when the stock market was at its peak during its last bull run. Further, it the notification issued by SEBI towards 100% dematerialisation of shares, stocks and securities by 5th December 2018, it is expected that the number of Demat account opening is only going to rise in 2018-19.
Before we explore why the sudden rise in Demat account openings in India and its implications on the Indian economy and the stock exchanges across India, first let us understand what is a Demat account.
What is a Demat Account?
Demat account or a dematerialised account is a form of account used to hold, trade and transact shares and securities in electronic form. While trading in stocks and securities online, shares and securities are purchased and held in a Demat account, and thereby facilitating an easy trade for the users. A Demat account can hold all forms on securities investments such as shares, exchange -funds, bonds government securities, and mutual funds in one single place.
Why a sudden jump in Demat Account Opening
The following factors can be attributed to the sudden rise in the Demat account opening
- The Real Estate Sector, which was a traditional form of investment for many investors is displaying a very sluggish growth over the last few years, prompting investors to change their investment habits from real estates to securities.
- Interest Rates have been soft over the last few years, with debt instruments like Fixed Deposits providing low returns, forcing investors of debt instruments to alter their investment behaviour and divert their investments in the securities market.
- Post-Demonetisation, the major household saving and investment behaviour has altered and has shifted from physical assets such as gold and silver to financial assets such as stocks, securities, mutual funds etc.
- A string of successful IPOs has instilled investor confidence. About 37 companies have raised over Rs. 66,500 crores through their Initial Public Offers or IPO. This has helped in regaining investor confidence and encourage more people to invest in the stock market, hence also attributing to the rise in the opening of Demat accounts.
- The process of opening of Demat accounts has also being simplified as compared previously. Individuals can easily open Demat account online, without much formalities and documentation, hereby encouraging investors to enter the securities market directly rather than through a broker.
- With intense competition between various Depository Participants such as Banks, Brokerage firms and financial institutions, the cost of opening, operating and maintaining a Demat account has reduced drastically. Also, with the introduction of 2-in-1 Demat accounts, 3-in-1 Demat accounts, Discount broking account, full-service accounts etc., investors have a wide array of options to choose and select the best Demat account which suits their needs and requirements.
- You can Visit this website to open Demat account online.
A Few Advantages of having a Demat Account
- Easy Holding of Shares.
Demat accounts hold all shares and securities bought from stock exchanges in electronic format in a single account, unlike previously, when people had to sort, file and securely store original share certificates to prevent any form of loss, theft or damage.
Investors and shareholders can now convert their shares, stocks, securities into dematerialised form and merely open Demat account online to hold their equity investments.
- No Stamp Duty Required on Transfer of Securities
Earlier, while physically transferring shares, stamp duty or share transfer stamps had to be posted below the share certificate. With the introduction of Demat account, this has been replaced by the security transaction tax, wherein the entire process of visiting stock exchange to purchase share transfer stamps has been eliminated.
Investors can save on stamp duty, all they need to do is open Demat account online and start transferring their shares using their Demat account.
- Shares can be transferred immediately
Investors and shareholders can open Demat account online and transfer shares almost immediately in the buyer’s name, and the shares will be credited in the buyer’s Demat account. Previously, when stocks were held in physical forms as share certificates, original share certificates had to be sent to the registrar or the company to get transferred in the name of an individual and this process was used to take weeks and even months. Also, there was a risk of losing share certificate during this process, which has been eliminated by Demat accounts.
- Easy divisibility of Shares
Previously, when shares were held in physical form as share certificates, investors were forced to buy, sell and trade shares in marketable lots of 50, 100, 200 shares, which made buying or selling shares in an odd quantity, like 24 shares a challenging task for investors. Now, investors can solve this dilemma with a simple step and open Demat account online.
Demat accounts have solved this issue by enabling investors to buy and sell shares in any number of share as they desire. Now investors can buy, sell or trade shares and securities in any divisible number as desired by an investor and is not restricted to lot size, i.e. now investors can transact even in a single share.
- Investors can operate with a single account
Investors can transact in equity instruments, securities, debt instruments like bonds, NCDs, Tax-free bonds etc. except debt instruments like bank and company fixed deposits can be held in a single Demat account.
Currently, less than 3% of the 1.2 billion population of India participates or invest in the stock markets. However, this sudden surge of record-opening of Demat account, changes in investment preferences of households and investor indicates higher participation of Indian in the stock markets and exchanges and are signs of the winds of change for the stock markets and securities exchange in India.