India's total demate accounts increase to 2 crore

The number of demat accounts with the country's two leading depositories, NSDL and CDSL, has grown substantially.

Demat account is opened to hold shares in dematerialised or electronic form. It does away with the problems (such as theft, forgery and loss in transit) associated with holding shares in physical form.

Driving the growth are banks and broking firms which have been offering a free demat account facility to existing clients and prospective investors as part of their marketing efforts.

Higher number of accounts, however, there is no improvement in participation of retail investors, as most of them continue to shy away from trading amid concerns over uncertain market conditions, according to brokers. As a result, many demat accounts are lying inactive continuously for the past many months.

From 2011 January this year, NSDL, the largest among the two depository services providers, has added 4 lakh new accounts, taking its tally to 1.17 crore at the end of June. CDSL has recorded a growth of over 9.16 lakh (increse 12%) to 76 lakh accounts in the last one year. An on 2011 July end India had nearly 2 crore demate accounts.

Higher no of demat accounts, however, have not given a leg-up to falling trading volumes, as less than 10% of demat account holders trade on a regular basis in the current market.

Declining volumes have prompted a host of brokers, including Kotak Securities, Sharekhan, Anugrah Finance, Unicon Financial and Nirmal Bang, to offer free demat and broking accounts to acquire new clients. Investors need to pay only a margin amount of money and registration charges while opening demat and trading accounts. Many brokerages, in fact, have slashed margin money which used to be in the range of Rs 5,000-10,000 a couple of years ago.

Banks like SBI, ICICI Bank, Axis Bank, HDFC Bank and IDBI Bank are offering three-in-one trading accounts to their banking clients. A 3-in- 1 account is one where savings and demat accounts are linked to an online trading account. Trading charges and other incidental expenses are linked to the volumes generated by investors.
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