How do Demat shares operate?

 How do Demat shares operate?

 

•  To understand The term 'depository' here, let us go back to the times when shares used to be held in physical form by the shareholders and the evidence that a particular person was a shareholder in a particular company in which he/ she had invested, could be proved only by the fact that the said person had the share certificates of the company.
• With the advent of time, the companies dematerialised their shares by converting them into electronic form and thus, now-a-days if you wish to invest in the shares of a company, you can do so by opening a Demat account and so the shares get transferred to you. In this situation, you are the beneficial owner of the shares of the company in which you have invested. The physical shares are still issued by the Company and transferred to intermediary institutions (like NSDL and CDSL in India) who store and secure the shares for the company and the investor and maintains an account for their securities.
• These intermediaries are known as Depository, who work like a bank. So practically, the company issues the shares to you when you invest in the securities of the issuing company, but what you get is the electronic copy of the share certificate. The physical share certificate is handled by the Depository, although you are the beneficial owner of the securities. Whenever any transfer of shares takes place, the Depository's function is to transfer the ownership of shares from one investor's account to another investor account.