The Indian stock markets are in the fifth year of a bull run, giving an annualized return of 38% since 2003. Unlike the previous bull runs in the Indian stock markets, which were followed by one scam or the other, this rally has been drawn purely on the fundamental story of the Indian economy.
So one would imagine that the number of people investing in the stock markets would be significantly higher and that the number of demat (dematerialized) account holders in India would also be large. But the Invest India Incomes and Savings Survey 2007 by IIMS Dataworks, a retail finance research firm based in the Delhi suburb of Noida, shows that the number of demat account holders forms a very small proportion of the total working population.
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The first-of-its-kind survey, which profiles demat account holders in the country according to their profession, income, age group and investing habits, reveals that only 5.8 million out of 321 million salaried individuals, or 1.81%, in the age group of 18-59 years, hold a demat account.
A demat account is a type of banking account that dematerializes paper-based, physical shares. The account is used to do away with holding physical shares, which are bought and sold through a stock broker.
The Securities and Exchange Board of India (Sebi) requires a demat account for all share trading.
In January 2007, it became mandatory for any person holding a demat account to possess a permanent account number (PAN).
But that doesn’t mean all these demat account holders have stocks in their portfolio or are regular investors in the stock markets. Of the 5.8 million demat account holders, just half of them are currently investing in stock markets. Indeed, there are a lot of investors who would have opened accounts for transfer of physical share certificates into the demat mode so that they can cash their investments in shares. One cannot trade in physical share certificates anymore. Therefore, these investors may not necessarily be active in stock markets. In addition, banks offer demat accounts as a free service to their customers, even if these customers do not intend to invest in shares. So there could be inactive demat accounts because of this.
At the same time, the survey highlights the inclination of this set of investors towards insurance in their portfolios. Around 81% of survey respondents said that the annual insurance premium formed a part of their investment portfolio. Around 33% of them also said that they had invested in mutual funds, which could include both equity as well as debt-based products.
Bank deposits were a part of the portfolio for nearly one-fourth of demat account holders, while post office savings, which carry fixed and assured interest rates, was a feature only in 15% of portfolios.