Demat account

From Wikipedia, the free encyclopedia

In India, shares and securities are held electronically in a dematerialized (or "Demat") (/dimt/;) account,
instead of the investor taking physical possession of certificates. A Demat account is opened by the investor
while registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for
all transactions to enable electronic settlements of trades to take place. Every shareholder will have a
Dematerialized account for the purpose of transacting

Access to the Dematerialized account requires an internet password and a transaction password. Transfers or
purchases of securities can then be initiated. Purchases and sales of securities on the Dematerialized account are
automatically made once transactions are confirmed and completed.

Contents
1 Advantages of demat
2 Goal of Demat System
3 Demat benefits
4 Depository Participant (DP)
5 Demat conversion
6 Demat options
7 Fees involved
7.1 Account-opening fee
7.2 Annual maintenance fee
7.3 Transaction fee
8 Documents Required For Demat Account[5]
9 Disadvantages of Demat
10 Transfer of Shares between (depository participant) DPs
11 References

Advantages of demat
The bonus/right shares allotted to the investor will be immediately credited into his account.There is no
risk due to loss on account of fire, theft or mutilation. Transaction costs are usually lower than that in the
physical segment.

A demat account also helps avoid problems typically associated with physical share certificates.

For example: delivery failures caused by signature mismatch, postal delays and loss of certificate during transit.
Further, it eliminates the risks associated with forgery and due to damaged stock certificates.

Demat account holders also avoid stamp duty (as against 0.5 per cent payable on physical shares) and
filling up of transfer deeds.

The biggest advantage of having demat account is that you don't have to pay for stamp since these are
 electronically stored which reduces the transaction cost.

Goal of Demat System

India adopted the Demat System for electronic storing, wherein shares and securities are represented and
maintained electronically, thus eliminating the troubles associated with paper shares. After the introduction of
the depository system by the Depository Act of 1996, the process for sales, purchases and transfers of shares
became significantly easier and most of the risks associated with paper certificates were mitigated.

In 1996, trading began on NSE for shares held in demat account form. It was the beginning of a new paperless
trading stock market trading environment. If an investor buys a share today, it gets credited to the investor's
account in two days. Today, shares get transferred to the investor's demat account.[1]

Demat benefits
Demat account for shares and securities with Business purpose

The benefits of demat are as follows:

Easy and convenient way to hold securities

Immediate transfer of securities
No stamp duty on transfer of securities
Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake
securities, delays, thefts etc. are mostly eliminated)
Reduced paperwork for transfer of securities
Reduced transaction cost
No "odd lot" problem: even one share can be sold
Change in address recorded with a Depository participant (DP) gets registered with all companies in
which investor holds securities eliminating the need to correspond with each of them separately.
Transmission of securities is done by DP, eliminating the need for notifying companies.
Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc.
A single demat account can hold investments in both equity and debt instruments.
Traders can work from anywhere (e.g. even from home).

Benefit to the company

The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It
increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It
provides better facilities for communication and timely service to shareholders and investors.

Benefit to the investor : The depository system reduces risks involved in holding physical certificates, e.g., loss,
theft, mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares. It
ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences,
etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more
acceptability and liquidity of securities.

Benefits to brokers

It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates
chances of forgery or bad delivery. It increases overall trading and profitability. It increases confidence in their
investors.

Depository Participant (DP)

A depository (in simple terms) is an institution holding a pool of pre-verified shares held in electronic mode that
offers efficient settlement of transactions. A Depository Participant (DP) is an intermediary between the
investor and the depository. A DP is typically a financial organization like a bank, broker, financial institution,
or custodian acting as an agent of the depository to make its services available to the investors. Each DP is
assigned a unique identification number known as DP-ID. As of March 2006, there were a total of 538 DPs
registered with SEBI.

Demat conversion
Converting physical records of investments into electronic records is called "dematerialising" of securities. In
order to dematerialise physical securities, investors must fill in a Demat Request Form (DRF), which is
available with the DP and submit the same along with physical certificates. Every security has an ISIN
(International Securities Identification Number). A separate DRF must be filled for every ISIN.

The complete process of dematerialisation is outlined below:

The investor surrenders the certificates for dematerialisation to the DP.

DP updates the account of the investor.
dmat accounts are maintained by NSDL(National Securities Depository Limited) and CDSL(Credit
Depository Servises Limited) and the banks act as intermediary.

Demat options
There are many hundreds of Depository Participants (DPs) offering the Demat account facility in India as of
September 2011. A comparison of the fees charged by different DPs is detailed below.

There are a few distinct advantages of having a bank as a DP. Having a Demat account with a bank DP, usually
provides quick processing, accessibility, convenience, and online transaction capability to the investor.
Generally, banks credit the Demat account with shares in case of purchase, or credit a savings account with the
proceeds of a sale, on the third day. Banks are also advantageous because of the number of branches they have.
Some banks give the option of opening a demat account in any branch, while others restrict themselves to a
select set of branches. Some private banks also provide online access to the demat account. Hence, the investors
can conveniently check online details of their holdings, transactions and status of requests through their bank's
net-banking facility. A broker who acts as a DP may not be able to provide these services.

Fees involved
There are four major charges usually levied on a demat account: account opening fee, annual maintenance fee,
custodian fee and transaction fee. Charges for all fees vary from DP to DP.

Account-opening fee
Depending on the DP, there may or may not be an opening account fee. Private banks, such as HDFC Bank[2]
and AXIS Bank, ICICI Bank, do not have one. However, players such as Kotak Securities,[3] Sushil Finance,
Globe Capital, Karvy Consultants and Bajaj Capital Limited do impose an opening fee. But in Ventura
Securities ltd, Angel Broking[4] and some other companies do not have an any opening charge.State Bank of
India does not charge any account opening charge while other maintenance and transaction charges apply. Most
players levy this when re-opening a demat account. However, the Stock Holding Corporation offers a lifetime
account opening fee, which allows the investor to hold on to his/her demat account for a long period. The fee is
also refundable.

Annual maintenance fee

This is also known as folio maintenance charges, and is generally levied in advance. It is charged on annual or
monthly basis.

Transaction fee

The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis.
While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank pay the fee to the
transaction value, which is subject to a minimum amount. The fee also differs based on the kind of transaction
(buying or selling). Some DPs charge only for debiting the securities, while others charge for both. Some DP's
also charge the investor even if the instruction to buy/sell fails or is rejected. In addition, service tax is also
charged by the DPs

In addition to the other fees, the DP also charges a fee for converting the shares from the physical to the
electronic form or vice versa. This fee varies for both demat (physical-to-electronic) and remat (electronic-
to-physical) requests. For demat transactions, some DPs charge a flat fee per request in addition to the variable
fee per certificate, while others charge only the variable fee.

For instance, Stock Holding Corporation has charged Rs 25 as the request fee and Rs 3 per certificate as the
variable fee. However, SBI has charged only the variable fee, as Rs 3 per certificate. Remat requests also have
charges akin to that of demat. However, variable charges for remat are generally higher than demat.

Some of the additional features (usually offered by banks) are as follows. Some DPs offer a frequent-trader
account, where they charge frequent traders at lower rates than the standard charges. Demat account holders are
generally required to pay the DP an advance fee for each account that will be adjusted against the various
service charges. The account holder needs to raise the balance when it falls below a certain amount prescribed
by the DP. However, if the holders also hold a savings account with the DP, they can provide a debit
authorisation to the DP for paying this charge. Finally, once choosing a DP, it would be prudent to keep all
accounts with that DP, so that tracking of capital gains liability is easier. This is because when calculating
capital gains tax, the period of holding will be determined by the DP, and different DPs follow different
methods. For instance, ICICI Bank uses the first in first out (FIFO) method to compute the period of holding.
The proof of the cost of acquisition will be the contract note. The computation of capital gains is done
account-wise.

Indian Banking System First, an investor has to approach a DP and fill up an account opening form. The
account opening form must be supported by copies of any one of the approved documents to serve as proof of
identity (POI) and proof of address (POA) as specified by SEBI. An investor must have his/her PAN card in
original at the time of opening of the account (mandate effective from April 1, 2006).

All applicants should carry original documents for verification by an authorized official of the depository
participant, under his signature. Further, the investor has to sign an agreement with the DP in a depository
prescribed standard format, which details rights and duties of investor and DP. DP should provide the investor
with a copy of the agreement and schedule of charges for their future reference. The DP will open the account in
the system and give an account number, which is also called BOID (Beneficiary Owner Identification number).
The DP may revise the charges by giving 30 days notice in advance. SEBI has rationalised the cost structure for
dematerialisation by removing account-opening charges, transaction charges for credit of securities, and custody
charges vide circular dated January 28, 2005.

Documents Required For Demat Account[5]

To open a Demat account you have to provide documents which fulfill the requirements of KYC (Know Your
Customer) norms. You have to sign a contract with Stock broker. Generally the documents are:

PAN (Compulsory)
Bank statement (last 3 months)
Address Proof
Income Tax Return
Two colour photos
Bank crossed Cheque (If required)
KYC details
Aadhar Card

Disadvantages of Demat
Trading in securities may become uncontrolled in case of dematerialized securities.
It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized
securities and see to it that trading does not act as a detriment to investors.
For dematerialized securities, the role of key market players such as stock-brokers needs to be supervised
as they have the capability of manipulating the market.
Multiple regulatory frameworks have to be conformed to, including the Depositories Act, Regulations
and the various Bye-Laws of various depositories.
Agreements are entered at various levels in the process of dematerialization. These may cause worries to
the investor desirous of simplicity.
There is no provision to close a demat account, which is having illiquid shares. The investor cannot close
the account and he and his successors have to go on paying the charges to the participant, like annual
folio charges etc..
After liquidating the holdings, many Indian investors don't close their dp account.They are unaware that
DPs charge even on dormant accounts

sat

Transfer of Shares between (depository participant) DPs

To transfer shares, an investor has to fill one of two kinds of Depository Instruction Slip (DIS). The first check
made is whether both Demat accounts are at the same depository. There are two depositories: (CDSL (Central
Depository Service (India) Limited) and NSDL (National Securities Depository Limited)). If both demat
accounts are not at the same depository, then an Inter Depository Slip (Inter DIS) has to be filled and submitted.
For example:

If there is one Demat account with CDSL and the other Demat account with NSDL, then an Inter-DIS is
needed. (In case the investor needs an Inter-DIS, the investor should check with the broker, since brokers
usually issue an Inter-DIS).
Now that the correct DIS has been determined, information pertaining to the transfer transaction has to be
entered: scrip name, INE number, quantity in words and figures.
Finally, the investor should submit that DIS to the broker with signatures.
The transfer broker shall accept that DIS in duplicate and acknowledge receipt of DIS on duplicate copy.

The investor should submit the DIS when the market is open. Accordingly, date of submission of DIS and date
of execution of DIS can be same or a difference of one day is also acceptable. The investor also has to pay the
broker some charges for the transfer.

References
1. "History of Demat". Kotak Securities. Retrieved 18 February 2015.
2. Demat, HDFC Bank. "Demat Account". HDFCBank.com. Archived from the original on 2014-03-18.
3. Securities, Kotak. "Demat Account Charges". KotakSecurities.com.
4. Demat Account Charges, Angel Broking. "Open A Demat Account". angelbroking.com.
5. "Documents Required for Opening Demat Account".

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Categories: Securities (finance) Stock market Financial services in India

This page was last edited on 10 April 2017, at 17:25.

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