A DEMAT Account or Dematerialised Account is an account that is used to hold shares and securities in electronic format. The full form of Demat account is a dematerialised account. The purpose of opening a Demat account is to hold shares that have been bought or dematerialised (converted from physical to electronic shares), thus making share trading easy for the users during online trading.
In India, depositories such as NSDL and CDSL provide Free Demat account services. Intermediaries, depository participants or stockbrokers facilitate these services.
A Demat Account holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one place.
Dematerialisation is the process of converting the physical share certificates into electronic form, which is a lot easier to maintain and is accessible from anywhere throughout the world. An investor who wants to trade online needs to open a Demat with a Depository Participant (DP). The purpose of dematerialisation is to eliminate the need for the investor to hold physical share certificates and facilitating a seamless tracking and monitoring of holdings
Physical shares have their own set of drawbacks as they may get torn, lost or stolen. Transfer of shares also took a long time as the process involved a lot of paper work. Dematerialized shares can be maintained easily and are stored in a safe manner.