DEMAT ACCOUNT

DEFINATION:The term Demat, in India, refers to a dematerialised account for individual Indian citizens to trade in listed stocks or debentures, required for investors by The Securities Exchange Board of India (SEBI). In a demat account, shares and securities are held electronically 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 Demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Access to the Demat account requires an internet password and a transaction password as well as initiating and confirming transfers or purchases of securities. Purchases and sales of securities on the Demat account are automatically made once transactions are executed and completed.

ADVANTAGES OF DEMAT
A demat account reduces brokerage charges, makes pledging/hypothecation of shares easier, enables quick ownership of securities on settlement resulting in increased liquidity, avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments or IPOs. It also helps avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. Further, it eliminates risks associated with forgery, counterfeiting, and loss due to damaged stock certificates. Demat account holders also avoid stamp duty (as against 0.5 per cent payable on physical shares), filling up of transfer deeds, and obtain quick receipt of benefits likestock splits and bonuses . DEMAT BENEFITS The benefits are enumerated as follows:

It's a safe and convenient way to hold securities Immediate transfer of securities There is no stamp duty on transfer of securities

Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.

There is a major reduction in paperwork involved in transfer of securities,reduction in transaction cost etc.

No odd lot problem, even one share can be sold

Change in address recorded with 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 correspondence with companies;

Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.

Holding investments in equity and debt instruments in a single account.

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 the company. It provides better facilities for communication and timely services with shareholders, investors etc. 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 bad delivery. It increases overall of trading and profitability. It increases confidence in investors.

Depositories

A bank or company which holds funds or securities deposited by others, and where exchanges of these securities takeplace.
Shares and bonds are being issued by companies for quite some time. Ten years back, all these were issued in the form of physical certificates that the investor had to keep safe and then forward to the buyer once sold. This process was highly time consuming and gave rise to issues like fake securities and bad deliveries. All these reasons and the improvement in technology gave rise to depositories and the electronic mode of holding securities. A depository resembles a bank; however incase of a depository the deposits are securities, such as shares, debentures, bonds and government securities, in electronic form. A depository functions as a bank- both are common houses that hold assets of the participating members and provide services to clients. Comparison of a Depository with a Bank

Depositories
Hold securities in an account Transfer securities between accounts on the instruction of the account holder Assist in transfer of ownership without having to handle securities Facilitates safekeeping of shares

Banks
Hold funds in an account Transfers funds between accounts on the instruction of the account holder Assist in transfers without having to handle money Facilitates safekeeping of money

Benefits of having a Depository are as follows:

Holds securities in electronic form, thus reducing paperwork Applies for IPOs and other public offerings Transfers securities in an immediate manner Risks that are associated with physical certificates such as bad delivery and fake securities are absent Reduces transaction cost Eases nomination facility Direct transmission of securities by the DP to avoid correspondence with companies Records any corporate actions automatically

Depositories in India There are 2 depositories in India

The National Securities Depository Limited [NSDL] Central Depository for Securities Limited [CDSL]

Facilities offered by NSDL and CDSL

Dematerialization i.e. converting physical certificates into their electronic form Rematerialization i.e. converting securities in DeMat form into physical certificates Assisting in repurchase / redemption of mutual fund units Electronic settlement of trades in stock exchanges connected to NSDL Pledging or hypothecation of the dematerialized securities against loan Electronic credit of securities allotted in public issue, rights issue Receipt of non-cash corporate benefits such as bonus, in electronic form Freezing of DeMat account to avoid debits from the account Nomination facilities for DeMat accounts Services related to change of address Effective transmission of securities Other facilities such as holding debt instruments in the same account or availing stock lending / borrowing facility

Depository Participants Services provided by NSDL and CDSL are carried out through their agents known as Depository Participants [DPs]. DPs are appointed by depositories after an approval from SEBI. According to SEBI regulations, 3 categories of entities such as banks, financial institutions, and SEBI registered trading members qualify for becoming DPs Presently, there are 327 DPs in India. Few of them are:

Bank of India Bank of Baroda Kotak securities Motilal Oswal Reliance Capital UTI Yes Bank

Selecting DPs Few important factors while selecting a DP are:

Convenience: Distance from office or residence Comfort: Reputation of the DP, past association with the organization, whether the DP is in a position to give the specific service you may need Cost: The service charges levied by DP and the kind of services offered.