What is Demat Account ?

A Demat account is used by investors to store their purchased shares electronically. The term "Demat" is short for "Dematerialization," which means converting physical share certificates into electronic form. In Nepal, the Securities Board of Nepal (SEBON) mandated that investors must open a Demat account from Shrawan 1, 2073, to trade securities. This step was taken to make securities transactions safe, simple, and modern.

Importance of Demat Account

A Demat account functions similarly to a bank account, where shares, mutual fund units, bonds, and other securities can be stored electronically. This eliminates the need for physical certificates and makes transactions secure. Investors can deposit their shares into a Demat account, just like depositing cash in a bank account, and conduct electronic transactions.

Benefits of Demat Account

1. Electronic Storage: Securities purchased from the primary market (IPOs) and secondary market (stock exchanges) are stored electronically in a Demat account, eliminating the need for physical certificates and making investment management easy and safe.

2. Central Depository: In Nepal, the Central Depository System and Clearing Limited (CDSC) manages the depository and operational responsibilities of listed companies and other listed securities. As a central depository, CDSC acts as the custodian of all listed securities.

3. Ease of Transactions: A Demat account simplifies the buying and selling of listed shares, mutual funds, and bonds. When securities are purchased from the primary or secondary market, they are credited to the Demat account, and when sold, they are debited from the account. Transfers due to inheritance, court orders, or other legal means can also be processed electronically through a Demat account.

4. Accessibility and Convenience: Demat accounts provide ease of access to investments. Investors can view their share purchase and sale details online, making it easier to manage their investments.

5. Paperless Transactions: The use of Demat accounts has eliminated the need for physical paperwork in investment transactions, reducing the risk of losing, damaging, or misplacing physical certificates.

6. Cost-Effective: Opening and maintaining a Demat account is cost-effective. Currently, it costs NPR 150 for the initial setup (NPR 50 for account opening and NPR 100 for annual maintenance) and NPR 100 for yearly renewal. An additional NPR 50 per year is required for the Meroshare online service.

How to Operate a Demat Account

To open a Demat account, investors need to approach a depository participant (DP) authorized by SEBON and CDSC. The DP assists in opening the account, depositing securities, and providing other related services.

Key Stakeholders in Demat Account Operation

1. Central Depository (CDSC): CDSC establishes the rules, regulations, and systems necessary for the electronic storage of securities. It ensures that securities deposited by investors are safely stored in Demat accounts and supervises the activities of DPs.

2. Depository Participants (DPs): DPs are intermediaries or agents that connect investors to the central depository's electronic system. They help investors open Demat accounts, deposit securities, and facilitate transactions.

3. Securities Issuing Companies: These companies issue securities to the public and, after allocation, ensure that the securities are credited to the investors' Demat accounts through their share registrars.

Conclusion

The use of Demat accounts has modernized, secured, and expedited the process of securities transactions. It has made investing in the stock market easier and increased the number of investors. Demat accounts ensure the safe electronic storage and easy transaction of securities, contributing to a more robust and reliable capital market in Nepal.