Investing in shares is a popular way of creating wealth in India. Traditionally, investors held physical shares, which were in paper form and were physically transferred from the seller to the buyer. However, with the advent of technology, a dematerialized account, or demat account, was introduced, which allows investors to hold shares in an electronic form. While physical shares and demat accounts both offer advantages and disadvantages, investors often question which is better. In this article, we compare demat vs physical shares and attempt to answer this question.
Convenience
Holding physical shares is often inconvenient as investors need to keep track of the physical certificates, which can be misplaced, damaged, or stolen. The process of buying or selling physical shares can also be cumbersome, involving a significant amount of paperwork, and physical transfer of shares. On the other hand, demat accounts offer convenience and ease of management, as shares can be bought or sold just with a few clicks on the computer. This makes it an attractive option for investors who don’t want to deal with the hassles of physical share certificates.
Security
Physical shares can be lost, misplaced, or damaged, leading to significant losses. In contrast, demat accounts provide a secure method of holding shares electronically, where shares cannot be lost or damaged. Moreover, transactions in shares through demat accounts are secure and less prone to fraud or theft since transactions are executed electronically.
Cost
Physical shares are more expensive to hold with additional costs of printing and storage, which are deducted from the profits of the investment. Demat accounts, on the other hand, require minimal maintenance charges, with no storage or printing costs attached.
Transaction Time
Physical shares require a lot of paperwork. Therefore, buying or selling physical shares results in longer transaction times, sometimes several days or weeks. The process of transferring physical shares can be time-consuming and take days. In contrast, with demat accounts, shares can be traded online with the transaction completed in seconds. This makes it an attractive option for investors who require quick execution of transactions.
Future Corporate Actions
Corporate actions such as dividend payments, interest payments, and share tenders apply only to shares held in a demat account. Physical shares are excluded from any bonus or dividend issues resulting in a disadvantage to their shareholders. In demat accounts, shares’ holders automatically become eligible for all benefits to which they are entitled, including dividends, interest payments, and bonus issues.
Risk
Investing in physical shares comes with risks that cannot be ignored, such as loss, theft, forgery, and destruction of physical certificates. These risks can result in significant losses to the investor. Demat accounts, on the other hand, offer a risk-free method of holding shares electronically, with a high level of data security and protection.
Transparency
Demat accounts provide investors with a complete and transparent view of their holdings at all times. As an investor, you can log into your demat account and view your portfolio details at any time, thereby making better-informed investment decisions. This feature is not available with physical share certificates.