Shares and bonds represent a company. Anyone holding a substantial among of shares in a company can be termed as the legal owner of the respective company. Most people buy and sell shares in order to earn profit by taking advantage of the prices fluctuations. This buying and selling of shares has become a lucrative business making millions for the individual. In order to deal in shares in the 21st century, one has to open a Demat Account or Dematerialization Account. A demat account holds all the shares and investments of a person in an electronic format. Opening a free Demat Account in India is possible through a broker or an intermediary or through a depository like NSDL and CDSL. One has to accept the terms and conditions provided by the depository and pay the specified charges in order to enjoy the benefits of a Demat Account. All of it depends on the type of security traded and its value.
Various parties are involved in the process of dematerialization and subsequent opening of Demat Account. These are as follows:
Demat account holder:
The individual who wants to deal in shares has to open a demat account. Therefore, the account holder becomes the first and foremost party involved in the dematerialization process. It can be a buyer or a seller of electronic shares.
Stock exchange is referred to as the place where trading of shares and investments take place. It acts as the central location where the shares of different companies are bought and sold.
Clearing houses provide the necessary function of debiting and crediting the shares bought and sold in the stock exchange. They are responsible for transferring shares to the account of buyer and seller respectively upon trade. National Securities Clearing Corporation Ltd. and Indian Clearing Corporation Ltd. are the two main clearing houses in India.
They act as agents for depositories. All demat accounts in India are held by a depository participant which can be a bank or a financial institution which has been authorized by the government to deal in dematerialized shares.
These acts as intermediaries/brokers which handle demat accounts of the holder. They help an investor to deal in shares and bonds by acting as a broker who connects the buyer and seller.
NSDL and CDSL are two main depositories in India.
Opening a Demat Account allows its holder to assign a nominee to his/her account. It allows the nominee to operate the account and deal in the shares independently. He/she acts as guardian who is responsible for safekeeping of the shares.
These participants together make up the whole process of dematerialization and trading a success. If even one of the members does not perform his/her task properly then the whole process can collapse. Therefore, it is important to follow the specified government rules upon opening a demat account. It’s also important that various brokers and intermediaries perform their responsibilities properly according to set guidelines. Opening a demat account and trading through it at a stock exchange may be intimidating for the first time but it is the safest and fastest mode to invest in shares.