Gujarat BoardEnglish MediumSTD 12 CommerceOCMFINANCIAL MARKET3 Marks
Question
What is a demat account? How did its need arise?
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Answer
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.
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