Before dematerialization came about, shares of a company were stored in physical form. Shareholders often found this a challenge as certificates would get misplaced and the like. There was also the off chance they would get stolen. Fortunately, dematerialization of shares came around and these risks have been eliminated, as shares are now held in an electronic form in demat accounts. Nonetheless, there’s another side to the demat story and people claim that there are some disadvantages of demat account holding. You should be aware of these while you open a demat account.
The lives of investors have been significantly simplified with demat accounts and linked to a broking account, demat accounts can facilitate the purchase and sale of securities easily. Nowadays, every aspect of the financial world and its processes is done by electronic means, and this offers convenience and speed. However, there are certain disadvantages of dematerialization you should know about, and these are listed below.
1. Annual Charges
The first thing to consider while opening a demat account is the annual maintenance fees/charges that most banks charge. However many securities you hold in a demat account, whether it's one or many, you will undoubtedly have to pay a fee on an annual basis for maintenance costs. This charge is different from bank to bank, or wherever the demat account is being held. Nonetheless, you may come across some banks and finance companies that offer a free demat account for life.
2. Technology Savvy
If you know about stocks and securities today, you will realize that trading has become completely electronic. In order to trade, evaluate the share market, access your demat account, etc, you need to go online and have knowledge about basic computer operations that facilitate you to manage your portfolio. People who are not familiar with computer operations find it extremely difficult to operate a demat account online. Herein lies one of the huge demerits of demat account holding. Most seniors who hold shares find operating a demat account online an uphill task. If you aren’t tech-savvy, you may miss out on opportunities to trade and make consequent profits.
3. Share Trading at High Frequencies
With the dematerialization of shares, trading operations in the market have become faster and simply done with a click online. This compels shareholders/investors to track shares easily online, which may seem like an advantage. However, it also forces the habit of short-term trading, making you miss out on fruitful long-run investment opportunities. You may trade more often than not, leading to losses more than rich long-standing gains.
4. Stockbroker Supervision
Various stockbrokers are enabled with the power to run operations in the stock market. As an investor with a demat account, you have to be on top of things to continuously supervise your stockbroker’s actions. You may need to check if there are any incorrect transactions in your demat account from time to time. Being on edge about such issues is definitely one of the disadvantages of demat account holding.
A demat account brings many credits to the table, but is also a source of a few disadvantages. You can see the demerits of holding one and compare merits as you check out Finserv MARKETS where you can get more information.
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