Until the mid-1990s, people used to hold shares in the form of paper certificates in India. Such certificates were prone to get stolen or damaged. Hence, it was a headache storing and managing them. Needless to say, considerable expense was associated with storing such paper certificates.
However, as the Indian economy opened up in the early 1990s, and more companies wanted to raise funds, an increasing number of investors showed interest in investing in shares. Hence, the government enacted the Depositories Act of 1996, paving the way for dematerialisation (or demat) of shares. From then on, people started open demat accounts with brokers and began holding shares in an electronic format.
Consequently, people are no longer required to have paper certificates for their shares. They can just open a trading account. With that, they can have access to all their investments through their laptops and now even through mobile phones.
So, let’s understand how the process of dematerialisation which started in the mid-1990s is still changing the landscape of investments in India in 2024.
- Stock market investments are no longer only for elites: Till the mid-1990s, only a tiny percentage of India’s population used to invest in the stock market. Such investments were expensive and cumbersome to make. Besides, most people living in Tier-2 and Tier-3 cities had limited or no access to brokers. They didn’t even have knowledge in terms of how to manage the paperwork related to investments. Dematerialisation sorted this issue to a large extent. With the growth in internet penetration, many people in small towns now invest in the stock market. Till the mid-1990s, if you didn’t have access to a broker, it would have been extremely difficult for you to analyse the stock market. However, now, many full-service brokers offer resources and knowledge on their trading platforms, which demystify the world of the stock market for an average investor. Hence, a lot more people invest in the stock market now than they used to in the 1990s.
- Growth in mobile trading apps: In the last few years, many brokers have launched their mobile trading apps. Besides, mobile penetration has rapidly increased in India in the last decade. Many people who never had a laptop or an internet connection are now connected to the internet, thanks to their mobile phones. Such people are using mobile trading apps to participate in the stock market. Earlier a lot of people were not able to participate in the stock market because they had to spend countless hours commuting for work. With the advent of mobile trading apps, they can trade on-the-go now.
- Use of advanced technologies coupled with demat accounts is revolutionising the market: Today, technologies like artificial intelligence (AI) and machine learning are helping brokers provide tailored investment advice to investors based on their financial goals and risk tolerance levels. All this wouldn’t have been possible had dematerialisation not happened. Big analytics is helping corporations make sense of large chunks of data, which wasn’t possible earlier. Financial companies have better technology and tools at their disposal today than earlier to make sense of what their customers want. This is particularly important for a country with vast disparities like India. With such tools, finance companies can better attract customers, who till recently were not participating in the market. Thanks to demat accounts, such people can make stock market transactions from virtually anywhere.
Conclusion
In the last few years, a significant number of people have opened new demat accounts in India. More people in Tier-2 and Tier-3 cities are making stock market investments than earlier. Many investors in even villages of India are aware of the benefits of demat accounts. Besides, AI, machine learning, and other technologies have helped India’s fintech ecosystem analyse the market like never before. Today, finance companies have tools to analyse large volumes of data to understand what their customers want. These technologies, along with demat accounts, are transforming India’s investment scenario in 2024 like never before.