DEMATERIALIZATION

In India, shares and securities are held electronically in a dematerialized (or "Demat") account, instead of
the investor taking physical possession of certificates. A Dematerialized account is opened by the investor
while registering with an investment broker (or sub-broker).
WHAT IS DEMATERIALIZATION?
Technology has brought about a drastic change in our everyday lives. The stock markets too have not
been left untouched by the change. In 1875, the Bombay Stock Exchange was founded with an open
outcry floor trading exchange. Traders would stand on the floor and shout prices of stocks for buying or
selling. Then, money would be exchanged for physical receipts of the shares called the certificate. This
led to a great amount of paperwork. Even the settlements of trade agreements took time because of the
need to deliver the share certificates.
Much has changed since.
In 1996, dematerialization was embraced. Dematerialization is the process by which physical share
certificates held by an investor are converted into an equivalent number of securities in electronic form
and credited into the investors demat account

Aims and Objectives

1.To Underatand the meaning of Dematerialization.
2.To Understand various constituents of depository system.
3.To know the procedure of Dematerialization.
4.To Understand the Need & Importance of Dematerialization.
BENEFITS OF DEMATERIALIZATION

COMMON BANK:
Dematerialization is not just for shares, but also for debt instruments like bonds. Now, you can hold all
your investments in a single account.
AUTOMATIC UPDATE:
Since this is a common account, you dont have to keep giving all your details like addresses every time
you transact or every time you change the details. These details are automatically made available to
companies you transact with.
ODD-LOT PROBLEM:
Earlier, shares were transacted in lots. A single or odd number of securities could not be transacted. This
problem is now eliminated.
DELIVERY RISKS:
Dematerialization has also eliminated the risks of fake shares, thefts, deliveries gone wrong, and so on,
and reduced the paperwork involved. Time of delivery has also reduced drastically. Once your trade is
approved, the securities are automatically credited to your account. This applies to other company-related
activities like stock splits, stock bonuses, and so on.
COST REDUCTION:

Earlier, when you transferred the securities, you incurred extra costs due to the stamp duty. This is not a
problem with the demat form.
EASY TO HOLD:
Paper certificates are vulnerable to tears and damage. In contrast, the dematerialized or demat format is a
safe and convenient way to hold securities. You also have a nomination facility, whereby you can
facilitate a transfer of shares in the event of your demise.
WHAT IS SHARE MARKET?
A demat is to your shares what a bank account is to your money. Simply put, it is the account that holds
all your shares in electronic or dematerialized form. Like the bank account, a demat account holds the
certificates of your financial instruments like shares, bonds, government securities, mutual funds and
exchange traded funds (ETFs). You cannot trade in the stock market without a demat account.
Methodology

Every project work is based on certain methodology, which is a way to systematically solve the
problem or attain its objectives. I have completed my project with the help of various secondary
sources, I have also taken help from reference books and various online websites.
UNDERSTAND HOW THE DEMAT ACCOUNT WORKS:

CENTRAL DEPOSITORY:
There are two depositories in India the CDSL and NSDL. They hold all the demat accounts. The central
depository holds details of your shareholding on your behalf like banks.

UNIQUE ID:
Each demat account has a unique number for identification purposes. This is the number you need to
provide for transactions. The number will help the exchange and companies identify you and credit the
shares in your account.
DEPOSITORY PARTICIPANTS:
Access to the central depository is provided by the Depository Participants or DPs. They act as the
intermediary between the central depository and the investor. DPs could be banks, brokers or financial
institutions that are empowered to offer demat services. Kotak Securities is one such Depository
Participant (DP). You open a demat account or a Beneficial Owner (BO) accounts with a DP, who will
provide you a unique access to the central depository.
PORTFOLIO HOLDING:
The demat account holds all your securities. So, whenever you check your account, you can see your
portfolio holding and its details. These are updated automatically every time you conduct a transaction
be is buying or selling a security.
HOW DO YOU OPEN A DEMAT ACCOUNT?

Then fill up an account opening form and submit along with copies of the required documents
and a passport-sized photograph. You also need to have a PAN card. Also carry the original documents for
verification.

You will be provided with a copy of the rules and regulations, the terms of the agreement and the
charges that you will incur.

During the process, an In-Person Verification would be carried out. A member of the DPs staff
would contact you to check the details provided in the account opening form.

Once the application is processed, the DP will provide you with an account number or client ID.
You can use the details to access your demat account online.

As a demat account holder, you would need to pay some fees like the annual maintenance fee
levied for maintenance of account and the transaction fee -- levied for debiting securities to and from the
account on a monthly basis. These fees differ from every service provider (called a Depository Participant
or DP). While some DPs charge a flat fee per transaction, others peg the fee to the transaction value, and
are subject to a minimum amount. The fee also differs based on the kind of transaction (buying or
selling). 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.

Minimum shares: A demat account can be opened with no balance of shares. It also does not
require that a minimum balance be maintained.
WHAT ARE THE DOCUMENTS REQUIRED FOR A DEMAT ACCOUNT?
You need to submit proof of identity and address along with a passport size photograph and the account
opening form. Only photocopies of the documents are required for submission, but originals are also
required for verification.
Here is a broad list of documents that can be used as proofs:
You need to submit proof of identity and address along with a passport size photograph and the account
opening form. Only photocopies of the documents are required for submission, but originals are also
required for verification.
Proof of identity: PAN card, voter's ID, passport, driver's license, bank attestation, IT returns, electricity
bill, telephone bill, ID cards with applicant's photo issued by the central or state government and its
departments, statutory or regulatory authorities, public sector undertakings (PSUs), scheduled commercial
banks, public financial institutions, colleges affiliated to universities, or professional bodies such as ICAI,
ICWAI, ICSI, bar council etc.
Proof of address: Ration card, passport, voter ID card, driving license, bank passbook or bank statement,
verified copies of electricity bills, residence telephone bills, leave and license agreement or agreement for
sale, self-declaration by High Court or Supreme Court judges, identity card or a document with address
issued by the central or state government and its departments, statutory or regulatory authorities, public
sector undertakings (PSUs), scheduled commercial banks, public financial institutions, colleges affiliated
to universities and professional bodies such as ICAI, ICWAI, Bar Council etc.
This is easy. All you need to do is fill in the Demat Request Form (DRM), fill in the appropriate details of
the share certificates you hold, and submit it with the physical share receipt. Every share certificate needs
a separate DRM form. Once the form is approved, your demat account will automatically be updated to
reflect your newly dematerialized shares.
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

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
each 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.

Demat options
There are many hundreds of Depository Participants (DPs) offering the Demat acount 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.

Banks providing DEMAT ACCOUNTS.

Kotak Securities Ltd

State Bank of India

Bank of Baroda

HDFC Bank

ICICI Bank

IDBI Bank

AXIS Bank

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, do not have one. However, players such as Kotak Securities,[3]Sushil
Finance, ICICI Bank, Globe Capital, Karvy Consultants and Bajaj Capital Limited do impose an opening
fee. But in Ventura Securities ltd, and some other companies doesn't 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 DPs 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 frequenttrader 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.

Conclusion

The services provided by the firm should be satisfactory. The firm should focus on the people
who are not trading inspite of having the accounts and they should provide full knowledge to

their customers and the customers who are having issues related to services ,the services should
be improved and their queries should be handled efficiently .Is still a growing industry and it
provides a security to the people having account with them by the specialuse of key

1.Only securities admitted by NSDL can be dematerialized. The list is available with your DP
2.Only securities registered in the name of the account holder can be dematerialized.
3.Dematerialization is normally completed within 15 days after the share certificates
havereached the issuer/ their R&T Agent. Thus it may take you a month from the date youhand
over shares, to receive de-mat credit.
4.Dematerialization would be done only when the issuer / their R&T Agent is satisfied
of genuineness of securities & ownership status.
5.All the joint holders should sign the DRF.
6.The pattern of holding in the DRF should match the pattern of holding on the sharecertificate
& the pattern in which account is opened.
7.De-mat requests with name(s) not matching exactly with the name(s) appearing on
thecertificates merely on account of initials not being spelt out fully or put after or prior tothe
surname, would be processed, provided the signature(s) of the client(s) on the DRFtallies with
the specimen signature(s) available with the issuer/ their R & T agent.
8.If the signature in the DRF does not match with the signature available with the issuer/ their R
& T agent, the issuer/ their R & T agent may at the time of de-mat confirmation ask for
additional documentation (like bank attestation etc.) to prove that the certificate belongs to the
person who forwarded the DRF.
9.In case there is any problem in processing the DRF, contact your DP and if he cannot resolve
the problem you may contact NSDL.
Bibliography
1.https://en.wikipedia.org/wiki/Demat_account
2.http://colleged.info/find-conclusion-of-demat-account
3.https://www.scribd.com/doc/120297953/21/CONCLUSION
4.https://www.google.co.in/?
gfe_rd=cr&ei=RDRdVsbIEtD08weRopzIBw#q=need+and+importance+of+demat+account
5.Secretarial Practice.