What is Dematerialization and How does Dematerialization Work?
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There are many facets to trading and investing in the world now. The world of trading is constantly involving and creating new opportunities for investors and trading organizations alike. This is why it is important to keep an eye out for the different possibilities that this stock exchange world is bringing to you. One such aspect is called Dematerialization. It is the very process that has allowed trading and investing so much easier for everyone. This article will tell you all that you need to know about dematerialization or DEMAT.
What is Dematerialization?
Much as the term suggests, dematerialization is the move of organizations from physical certificates to electronic bookkeeping. The stock certificates are then removed from circulation for this electronic recording to be processed further. Stock certificates were physical piece of paper that was issued out to people to show their ownership in the company through those stocks. In India, the first stock certificate was issued by the Dutch East India Company in 1606, worth 150 Dutch Guilder. All these systems have now obviously become old-fashioned and out of practice.
However, the process of these practices going away only came with the practice of dematerialization in the market. Today, everything in the stock market is digitized. This is how we have been able to connect global markets in reality. It is because of dematerialization that the world has been able to come together to create the best practices for the stock market to reach new heights. The process of dematerialization has made it possible for the world to work under any market they want to.
What is Dematerialization of Shares?
The basic logic that needs to be understood when it comes to dematerialization of shares was that it was a process to improve the stock exchange system for every player involved. It was also a way for the stock exchange to become much easier to handle and transparent for everyone. There is no room for mistakes or glitches as a result of this dematerialization process coming into place.
Dematerialization is called DEMAT nowadays. These DEMAT processes have now been tuned into accounts for the convenience of traders to invest more easily and efficiently. These DEMAT accounts have also been acquired by some trading institutions because they allow all the records of your trade to be in one place. All these recordings are easily accessible and allow you to make better financial decisions.
How does Dematerialization Work?
Yes, dematerialization has helped digitize the process of trading and stock market exchanges come online. However, how do stock trading and investing actually work through dematerialization? Technology is the answer to our question. The internet and computers have allowed us to organize and strategize measures for the world market as well.
Once stock certificates were converted to their digital form, dematerialization allowed the stock market to move beyond securities in its certificate form. People can now just keep their DEMAT account numbers in mind. These DEMAT account numbers need to be linked with your PAN card numbers as well in India. All these systems mount to showing how the dematerialization system works and are very important in today’s context.
Before the dematerialization system came into the picture, the transactions at the stock exchange depended solely on the traders. These deals were then recorded on paper and would then be registered at the end of the day to keep a proper record of all the transactions of the day.
How did the process of Dematerialization Take Place?
Investors and institutional traders had to submit their paper stock certificates or paper bonds to their intermediary. They will be given a DEMAT account number and they will be notified every time there is a change or addition in your account. There is increased security in the entire process and the elimination of unnecessary paperwork.
What are the Benefits of Dematerialization?
The stock market is an extremely dynamic and growing field. There will never be enough traders in the market because there is room for everyone here. However, for the traders to remain relevant in their field. They need some basic investment from institutional organizations. The traders too need more and more people to invest in the stock exchange. This is why we see that there has been an exponential increase in the avenues for people to invest more and more in the market.
Here are some benefits to dematerialization that the world quickly realized and entered the world of trading:
- Eliminate unnecessary paperwork: There is no need for anyone to carry a large amount of paperwork to show proof of their investments and ownership of shares. They also opened avenues for less transparency in this process. Time is no longer wasted by traders or the people working in trading institutions because they do not have to keep a hand- written and physical copy of all the transactions conducted in a day. All these measures may seem impossible now but they were a very big reality of the recent past of trading and investment.
- Adopted electronic bookkeeping: The stock certificates had to be transferred and transformed to their digital versions as well. This is why we see an improvement in the efficiency of the stock market as well. All the DEMAT accounts now get updated automatically and the traders can now focus on trading alone. No one has to carefully fill out all the transaction information again and again.
- New forms of investment emerged: Individuals in the stock market are no longer dependent on the traders to make their investments. This has allowed them to explore all their options in the market. The stock market too has understood that they need to come up with certain systems that would make investing easier for people in the long run. This is why there are easy ways for everyone to invest in the market through a regulated manner. The most common ways of investment today are through mutual funds, IPOs and much more.
- Ready access to all your transactions: You can have access to all your previous and current transactions on your trading stocks and other investments. All the information is now updated and there are no scopes for any mistakes. You will not have to carry your paperwork anywhere as the information is already stored in your DEMAT account.
- Increased security: There is just no room for errors anymore. The systems and all transactions are updated on the account as is. More importantly, even the government can now track your progress in investment. These measures will actually give you tax benefits when you invest in a regular and controlled manner.
These are just some benefits of dematerialization. It is an automatic process for the world now, so we may not realize its importance. However, it is an important step to make the global markets much safer for the world and to improve economic benefits for all. Moreover, you can now visit Samco Securities and open your Demat Account for free.