Rusha Mandal Bhse Final Report

A Report
On
Dematerialization of Securities: Towards A Paperless

World of Securities!
By
Rusha Mandal, 14BSPHH010581
IBS Hyderabad
1
Dematerialization of Securities: Towards a Paperless World of Securities
A Report
on
Dematerialization of Securities: Towards a Paperless

World of Securities!
By
Rusha Mandal, 14BSPHH010581
A report submitted in partial fulfillment of the
requirements of
MBA Program of
IBS Hyderabad
Distribution list:
Bhubaneswar Stock Exchange
9th May 2015
2
Acknowledgements
I hereby take this opportunity to express my gratitude towards Bhubaneswar Stock Exchange for
allowing me to do my Summer Internship Program in their reputed and esteemed organization.
I would like to sincerely thank Mr. Debraj Biswal, Managing Director of Bhubaneswar Stock
Exchange, for giving me the opportunity to work with his organization as a trainee. I am grateful
to my company guide Mr. Bipin Bihari Dutta. His exemplary guidance and mentoring has
made it possible for me to complete my project successfully. In addition to my report, his
constant encouragement and the way he shared his knowledge about finance has helped me gain
a lot in the field of finance.
I am honored to get Dr. S.C. Bihari, as my faculty guide. His immense support and
encouragement throughout has helped to complete my project. He helped me in every way
possible. I am very grateful to you Sir for always being there, guiding me and clearing my doubts
throughout the course of my internship. Your feedbacks and suggestions time to time have
always been very helpful.
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Table of Contents
Page No.
SL. TOPIC
No.
1. Executive Summary 6
2. List of Illustrations 7
3. Birth of Dematerialization; A new era of Indian Capital 10

Market
4. Basics of Dematerialization 13
5. The Depositories Act, 1996 16
6. Depository establishment 19
 SEBI’s role in establishment 21
 Introduction to NSDL and CDSL 22
 A Comparative Study: NSDL vs. CDSL 22
7. A Bank & A Depository 28
8. Process of Dematerialization 29
9. Fundamentals of Demat A/c. Operation 32

 Transfers and Transactions in a Demat Account 33
through Delivery Instruction Slip (DIS)
 Power of Attorney (POA) 34
10. Benefits of Dematerialization 35
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11. Fee structure 36
12. Re-materialization 38
13. Analysis 39
A. Technical Analysis
 Delivery based transaction under NSE & BSE 40
 Analysis on the operations of NSDL 42
 Analysis on the operations of CDSL 49
 Six Popular Depository Participants in India 53
 A Case Study on Activities of dematerialized shares in 65
NALCO
B. Questionnaires & Survey Analysis 69
14. Findings and Suggestions 87
15. Conclusion 89
16. Reference 90
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Executive Summary
“If you want to have a better performance than the crowd, you must do things differently from
the crowd.” – Sir John. Trading in the stock market is very risky, but as it is said with more risks
there is more return. It is important to know the technicalities of trading to be a successful
investor and that will make the investor different from the crowd. Today also, there isn’t much
investor participation in the stock market, the main reason being awareness about the market.
The main objectives of the project “Dematerialization of Securities: Towards a Paperless World
of Securities” are: investor awareness and current status of Demat in India.
The fundamental knowledge about Dematerialization was achieved after studying the problems
related to physical form of shares. With the fundamental knowledge, analysis and research it was
found that Dematerialization has helped in the overall efficiency of the capital market which was
being challenged because of the physical form of shares. The physical form of the shares was
becoming a hindrance for the investors to enter into the capital market. It was only after the
introduction of Dematerialization that the investors gained confidence.
A technical analysis was done on the operations of NSE, BSE, NSDL, CDSL, six popular
depository participants in India, and a study on NALCO, all with respect to Dematerialization of
shares to understand investor awareness and the current status of Demat in India. The datas of
the companies are studied and trends are observed to get the fundamental knowledge of the
current status of Demat in India.
The analysis shows there is a growing trend in investment in securities. Now 99% of the
transactions are carried out in Demat form. Investor-participation has increased over the years.
There is a growth in depository participants, securities in dematerialized form, issuers and
number of active client accounts.
An exploratory research was also conducted to understand awareness of investors, their

preference between Remat and Demat and to know the satisfaction level of investors with
regards to transactions in demat account. The survey shows, out of eighty people surveyed,
seventeen people had demat accounts. People having demat accounts were very well satisfied
with the current scenario of demat. Dematerialization marked a new era in the Indian capital
market. Out of the sixty-three people who doesn’t have a demat account forty-five people are
aware of the system but do not have detailed knowledge as they do not trade in the stock market.
Thus my project explains the details of dematerialization by reasoning, findings and

interpretations.
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List of Illustrations
List of tables:-
Table Information about table Page Number

Numbers
1 Basics of NSDL & CDSL 22
2 Shareholding pattern of NSDL & CDSL 23
3 Financial highlights of NSDL & CDSL 23
4 Examples of Depository Participants (DPs) 26
5 Examples of Qualified Depository Participants (QDPs) 27
6 Difference between a bank and a depository 28
7 Delivery based transactions under NSE 40
8 Delivery based transactions under BSE 40
9 Total & Active client accounts under NSDL 42
10 The companies that signed agreement with NSDL 44
11 No. of securities dematerialized under NSDL 45
12 Value of all securities dematerialized under NSDL 46
13 Settlement Quantity & Settlement Value under NSDL 47
14 Beneficiary accounts with CDSL 49
15 Securities held by CDSL 50
16 No. of DPs registered under CDSL 52
17 Some of the popular DPs in India and their details 54
18 No. of clients registered with NSE & BSE 55
19 Percentage increase/decrease in the no. of clients 55
20 No. of complains against Indiabulls 56
21 No. of complains against ICICI Direct 58
22 No. of complains against kotak Securities 59
23 No. of complains against HDFC Securities 61
24 No. of complains against SBI Securities 62
25 No. of complains against Sharekhan 63
26 Shareholding pattern of NALCO 65
27 Major shareholders of NALCO 66
28 Percentage of demat shares of NALCO 66
B. Questionnaire & Survey
29 Age Group of the survey 69
30 Income group of the survey 70
31 No. of people saving from their income 71
32 Surveyed people having investing options 72
33 Surveyed people having trading account 73
34 Surveyed people having demat account 74
35 People knowing about demat account 75
36 People using various DPs 76
37 People satisfied with the fee structure 77
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38 No. of people and their AMC charges 78
39 People who check their security’s balances 79
40 Maintenance of trading account & demat account 80
41 Frequency of trading in stocks 81
42 Frequency of transactions in demat account 82
43 People given power to POA 83
44 Remat vs. Demat 84
45 Satisfaction level of the customers 85
List of figures:-
Figure Information about figure Page Number

Numbers
1 Flow chart showing how Dematerialization emerged 12
2 Flow chart showing the basic operation of Dematerialization 14
3 Flow chart showing the Depositories Act, 1996 17
4 Shareholding pattern of NSDL & CDSL 23
5 Main documents required to open a demat account 30
6 Steps involved to open a demat account 31
7 Fundamental facts about demat account 32
8 Process of Remat 38
9 Delivery based transactions with NSE & BSE (in %) 40
10 Total & active client accounts with NSDL 42
11 Growth rate of client accounts with NSDL 43
12 The companies that signed agreement with NSDL 44
13 No. of securities dematerialized under NSDL 45
14 Growth rate of securities dematerialized under NSDL 46
15 Value of all securities dematerialized under NSDL 47
16 Settlement Quantity of NSDL 48
17 Settlement Value of NSDL 48
18 Beneficiary accounts with CDSL 49
19 Growth rate of BO accounts with CDSL 50
20 Securities held by CDSL 51
21 Percentage of securities held by CDSL 51
22 No. of DPs registered with CDSL 52
23 Flow chart showing the link between Depositories & clients 53
24 Percentage of the no. of clients registered with NSE & BSE 56
25 No. of complaints against Indiabulls 57
26 No. of complaints against ICICI Direct 58
27 No. of complaints against Kotak Securities 60
28 No. of complaints against HDFC Securities 61
29 No. of complaints against SBI Securities 62
30 No. of complaints against Sharekhan 63
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31 Shareholding pattern of NALCO 66
32 Percentage of dematerialized shares of NALCO 67
33 Declining trend in physical shares of NALCO 67
34 Age group of survey 70
35 Income group of the survey 71
36 Surveyed people investing from their savings 72
37 Surveyed people having investing options 73
38 People with trading account 74
39 People with demat account 75
40 People knowing about demat account 76
41 People using various DPs 77
42 No. of people satisfied with the fee structure 78
43 No. of people and their AMC charges 79
44 People who check their security’s balances 80
45 Maintenance of trading & Demat account 81
46 Frequency of trading in stocks 82
47 Frequency of transactions in demat account 83
48 People given power to POA 84
49 Remat vs. Demat 85
50 Satisfaction level of customers 86
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Birth of Dematerialization; a new era of Indian Capital Market
Indian capital market mainly deals in medium and long-term investments (maturity more than a
year). Capital market can be divided into two segments viz. primary and secondary. The primary
market is mainly used by issuers for raising fresh capital from the investors by making initial
public offers, further public offers, or rights issues or offers for sale of equity or debt. The
secondary market provides liquidity to these instruments, through trading and settlement on the
stock exchanges. In India, the secondary and primary markets are governed by the Security and
Exchange Board of India (SEBI). SEBI protects the interests of investors in securities and
promotes the development of, and regulates the securities market and for matters connected and
incidental therewith. Capital market is, thus an important complex for raising funds for capital
formation and investments and forms a very vital link for economic development of any country.
The capital market provides a means for issuers to raise capital from investors (who have surplus
money available from saving for investment). Thus, the savings normally flow from household
sector to business or Government sector, which normally invest more than they save. A vibrant
and efficient capital market is the most important parameter for evaluating health of any
economy. The complex of primary market for issue of securities in support of capital
mobilization and also the liquidity platform or secondary trading in the issued securities through
the infrastructure of stock exchanges are inter-dependent to each other. Both are inseparable
segments and hence, constitute so called stock market which termed as one of the important
barometers of the economy.
The capital market was a marginal institution in the financial market for almost three decades
after India's independence. Indian capital market had seen unprecedented boom in its activity in
those years in terms of number of stock exchanges, listed companies, trade volume, market
intermediaries, investor population, etc. However, until late nineties the common man kept away
from capital markets. Not many companies accessed the capital market and, thus, the quantum of
funds mobilized through the market was meager. The Indian markets were literally weighed
down by the need to deal with shares in the paper form that threatened the very survival of the
capital markets in the long run. The old trading system was affected because of the following:
 Undue delay in getting allotted shares,

 Unwarranted delay in transfer of shares,
 Duplicate/fake forged shares,
 Court injunction cases,
 Bad deliveries,
 Loss in transits/theft/mutilation,
 Disputes or corporate actions
 Huge transaction cost,
 Longer settlement cycles and
 Poor infrastructure, large paper volume
All the above factors served as barriers to the entry of investors into the market. The investors
were scared and were under compensated for the risk borne by them. The century old system of
issue and trading & settlement requires handling of huge volumes of paper work. Lack of
modernization became a hindrance to growth and resulted in creation of cumbersome procedures
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and paper work. However the real growth and change occurred from mid-nineties in the wake of
liberalization initiatives of the Government. Government of India decided to set up a fully
automated and high technology based model exchange that could offer screen-based trading and
depositories as the ultimate answer to all such reforms and eliminate various bottlenecks in the
capital market, particularly, the process of issue of securities in the primary market the clearing
and settlement system in stock exchanges.
India adopted the Demat system for electronic storing, wherein shares and securities are
represented and maintained electronically, thus eliminating the trouble associated with paper
form of securities. After the introduction of the Depository Act 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 in trading stock market trading
environment. If an investor buys a share today, it gets credited to his demat account in two days.
Today, shares so allotted or purchased get credited to the investor’s demat account.
Dematerialization ('Demat' in short form) signifies conversion of a share certificate from its
present physical form to electronic form for the same number of holding. It offers scope for
paperless trading through state-of-the-art technology, whereby share transactions and transfers
are processed electronically without involving any share certificate or transfer deed after the
share certificates have been converted from physical form to electronic form. One of the major
advantages of this approach to electronic bookkeeping is that the need to physically store copies
of balance sheets and other accounting documents no longer exists.
The following securities shall be eligible for being held in dematerialized form in a depository:-
 shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities
of a like nature in or of any incorporated company or other body corporate;
 Units of mutual funds, rights under collective investment schemes and venture capital
funds, commercial paper, certificates of deposit, securitised debt, money market
instruments and [government securities] unlisted securities shall also be similarly eligible
for being held in dematerialized form in a depository.
Demat account is used for electronic maintenance of dematerialized shares owned by a person
either by way of subscription to the new issues or by acquiring from secondary market. When a
delivery based transaction takes place in the stock exchange relating to sale and purchase of
certain shares by a stock broker and his counterpart on behalf of their respective clients on a
Trading day (T), it involves both rights and obligations on the part of both the parties for smooth
settlement of such transaction. The buying broker has the obligation to ensure that the value at
which the shares have been bought has been transferred from his client’s bank account to his
clearing bank account which in turn has to be transferred to clearing pool bank account of
clearing corporation of concerned stock exchange on T+1 day. On the other hand, selling broker
has the obligation to ensure that the shares that have been sold on behalf of his client have been
transferred by an act of debit to client’s Demat account, to his clearing Demat account which in
turn have to be transferred to clearing pool Demat account of clearing corporation of concerned
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stock exchange on T+1 day. Similarly, after fulfilling the obligations, the buying broker has the
right to get shares so bought on T+2 day in his clearing Demat account which in turn have to be
credited to the Demat account of his client as soon as possible and on the other hand, the selling
broker has the right to get value of the shares so sold on T+2 day in his clearing bank account
which in turn have to be credited to the bank account of his client as soon as possible. Clearing
Corporation of stock exchange plays a greater surveillance and intermediate role to ensure
smooth settlement of transactions on T+2.
In the present set up for the purpose of acquiring shares from the secondary market one must
have adhered to three basic requirements of having a trading account, a bank account and a
demat account. While a trading account opened with a SEBI registered stock broker enables an
investor to buy or sell the securities in the stock exchange through his stock broker, a bank
account opened with a schedule bank facilitates him to make or receive payment for buying or
selling of shares and a demat account opened with a Depository through its SEBI registered
Participant enables him to make or receive delivery of dematerialized shares. Thus, operation of
a trading account for delivery based transactions is absolutely dependent on the existence of a
bank account and a demat account.
A demat account initially meant only for storing equities electronically, now one can hold mutual
fund units, bonds, debentures and national savings certificate. Its best use is, now one can have
control online, and make changes in convenience. You can simply log in and transact in shares.
Figure 1: Flow chart showing how Dematerialization emerged
Indian Capital Market
Primary Market Secondary Market
Problems with the physical

mode of settlement
Birth of Dematerialization: a new era of Indian Capital Market
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Basics of Dematerialization
Conversion of securities from physical (paper) form to electronic form can be achieved by two
methods
 Immobilization, and
 Dematerialization.
Under the immobilization method, after giving credit of the securities in electronic form,
physical certificates are stored or lodged with an organization, which acts as a custodian – a
securities depository. Subsequent transactions in such immobilized securities take place through
book-entries. Under the dematerialization method, the securities, issued in physical form are
destroyed and exactly equal numbers of securities are created in the depository system, which are
credited into the account of the investor. Unlike physical securities, the securities converted into
electronic form do not have any distinctive numbers and they are treated as equal and replaceable
in all ways i.e. securities in electronic form are fungible. All subsequent transactions (transfer of
ownership) of such securities take place in book-entry form. India has adopted dematerialization
method where as immobilization has been adopted by some of the countries like Hong Kong and
USA. Japan has adopted both, dematerialization as well as immobilization for achieving a paper-
less securities market.
The objective or the goal of Demat system in India is that, it is a system where no paper form of
securities is involved. Physical form is extinguished and shares or securities are held in
electronic mode. Before the introduction of the Depository Act 1996 providing for depository
system, the process of transactions relating to sale and purchase and subsequent transfer of
ownership of such shares so purchased was a huge problem and the safety perspective was
almost at stake.
This system of Dematerialization of securities works through Depository which is recognized by

the Securities and Exchange Board of India (SEBI) to perform the functions of a depository as
regulated by SEBI under Depository and Depository Participants Regulations framed by it under
Depository Act.. Under Section 68B of the Companies Act, inserted by the Companies
(Amendment) Act 2000, it is mandated that every Initial Public Offer (IPO) made by a listed
company in excess of Rs. 10 Crores has to be issued in dematerialized form by complying with
the requisite provisions of the Depositories Act, 1996.
Following requisites are necessary for dematerialization of securities:
 Investors should have a BO (Demat) Account with any of the depositories.

 Securities should be from the eligible list of securities issued by the depository.
 Securities must be in the name of the account holders and owned by him
 Separate Demat Requisition Form (DRF) is required for each issuer company.
 DRF should be signed by all the holders so as to match specimen signature
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The basic operation of Dematerialization:-
Figure 2: Flow chart showing the basic operation of Dematerialization
Depositories
National Securities Central Depository Services

Depository Ltd. (NSDL) (India) Ltd. (CDSL)
Depository Depository
Participants (DPs) Participants (DPs)
Investors/Shareholders/Beneficial Owners
The operations in the Depository System involve the participation of a Depository, Depository
Participants, Company/Registrars and Investors. The company is also called the Issuer.
 Demat account: Demat refers to a dematerialized account or Beneficiary Owner (BO)
account. Just as we have to open an account with a bank for making monetary
transactions such as saving money, receiving or paying money through cheques or
through modern technology of electronic transfer if we want to save our money, make
cheque payments, etc, similarly we need to open a demat account if we want to buy or
sell stocks. So it is like bank account where actual money is replaced by shares. We have
to approach a Depository Participant (DP) to open a demat account.
 A Depository- is an organisation which holds securities of investors in electronic form at

the request of the investors through a registered Depository Participant. It also provides
services related to transactions in securities. At present two Depositories viz. National
Securities Depository Limited (NSDL) and Central Depository Services (I) Limited
(CDSL) are recognised with SEBI. NSDL, the first and largest depository in India,
established in November 1996 and promoted by institutions of national stature. CDSL is
the second Indian central securities depository based in Mumbai.
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 A Depository Participant (DP) - is a SEBI registered intermediary (agent) of the
depository through which it interfaces with the investor. A DP can offer depository
services only after it gets proper registration from SEBI. A demat account cannot be
opened directly with NSDL or CDSL. The demat account has to be opened only though a
Depository Participant (DP) of NSDL or CDSL.
 Beneficial Owner: When physical shares are converted in to electronic form, the
depository becomes ‘Registered owner” in the books of the company and investors name
is removed from books of the company. Depository holds shares in its records on behalf
of the investors who have opened a demat account with the depository. Hence all benefits
are given to the actual investor who is called as a “Beneficial Owner” (BO) of the
securities.
 Issuer Company: It is a company which makes an issue of securities. A listed company

must have to establish connectivity with depositories for electronic maintenance,
allotment and transfer of ownership of dematerialized securities. Corporate/Companies
which issue any kind of security are known as ‘Issuer’ in the depository system. Only
those securities, which are admitted in the depository system are available for
dematerialization to the holders of such securities or can be allotted in electronic record
form by the issuer. Securities include shares, debentures, bonds, commercial paper (C.P),
certificate of deposits (C.D), pass through certificates (PTCs), government securities and
mutual fund units. Both listed and unlisted securities can be admitted into the depository
system.
 Rematerialisation: Rematerialisation is the process by which shares in electronic form are

reconverted into physical form.
 International Securities Identification Number (ISIN): “ISIN” is a unique 12 digit

alphanumeric code given to a security, shares, debentures, bonds etc. when the security is
admitted in the depository system. First two digits of the ISIN code indicate country of
registration for the security. All securities registered on depository in India, first two
digits of the ISIN code are “IN”.
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The Depositories Act, 1996
Published in the Gazette of India dated August 12, 1996
The Securities and Exchange Board of India (SEBI), in its pursuit to make Indian capital market
safe, transparent and disclosure oriented, has been pursing to reform so that the Indian capital
market match with the standards of developed capital markets of the world. Introduction of
trading in demat form of securities was at the top of SEBI’s agenda. To facilitate this initiative,
to ensure allotment and transfer of securities with speed, safety and security, Government of
India legislated Depositories Act in August 1996 that superseded ordinance issued by it earlier.
Legislation of Depository Act allowed securities to be dematerialized and the establishment of
Securities Depositories. Followed by the legislation, two Depositories such as National
Securities Depository Ltd. (NSDL) and Central Depository Services India Ltd. (CDSL) were
established in June, 1996 and in March, 1999 respectively. This initiative witnessed as one of the
land mark developments in creating new technology to issue and transact in paperless financial
instruments. To facilitate carrying out the purposes of this Act, SEBI notified Depositories and
Depository Participants Regulations in May 1996 to promote and regulate the depository
activities in the Indian securities market. Currently only two depositories such as NSDL and
CDSL are operating in the country.
The Depositories Act, 1996, ushered in an era of efficient capital market infrastructure, improved
investor protection, reduced risks and increased transparency of transactions in the securities
market. It also immensely benefited the issuer companies, in terms of reduced costs and the
effort expended in managing their shareholder populace. Perhaps, no other single act other than
the Depositories Act has had such profound all round impact on every single stakeholder in the
Indian capital markets. The Depositories Act which facilitated establishment of depositories (like
NSDL and CDSL) in India sought to effectively curb irregularities in the capital market, and
protect the interests of the investors, and paved a way for an orderly conduct of the financial
markets through free transferability of securities with speed, accuracy, transparency etc. Due to
the introduction of the depository system, the investors are able to enjoy many benefits like free
and instant transferability in a secured manner at lower costs, free from the problems like bad
deliveries, odd-lots etc. The investor is able to save a lot on account of stamp duty as government
has exempted stamp duty on transfer of securities at present. Investors are also spared from the
problems of preserving the securities held in physical form.
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Figure 3: Flow chart showing the Depositories Act, 1996
Depositories Act, 1996
Depositories
Depository Participants (DPs)
Investors/Shareholders (Beneficial owners)
a) Objectives
 Maintenance of ownership records of securities and effect changes in ownership records
through book entry,
 Dematerialization of securities in the depositories mode as well as giving option to an
investor to choose between holding securities in physical mode and holding securities in
a dematerialized form in a depository,
 Making the securities fungible,
 Making the shares, debentures and any interest thereon of a public limited company
freely transferable.
b) Eligibility- Any company or other institution to be eligible to provide services must
 Formed and registered as a company under Companies Act, 1956,
 Registered with SEBI as a depository under SEBI Act, 1992,
 Framed bye-laws with the previous approval of SEBI,
 One or more participants to render depository services on its behalf,
 Have adequate systems and safeguards to prevent manipulation of records and
transactions to the satisfaction of SEBI,
 Complies with Depositories Act, 1996 and SEBI (Depositories and Participants)
Regulations, 1996,
 Meets eligibility criteria in terms of constitution, network.
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c) Eligible Securities
 It is not necessary that all eligible securities must be in the depository mode. In the
scheme of the Depositories legislation, the investor has been given supremacy. The
investor has the choice of holding physical securities or opts for a depository based
ownership record. However in case of fresh issue of securities all securities issued to be
in dematerialized form.
d) Fungibility
 Section 9 of the depository act states that securities in depository shall be in fungible
form,
 The Act envisages that all securities held in depository shall be fungible i.e., all
certificates of the same security shall become interchangeable in the sense that investor
loses the right to obtain the exact certificate he surrenders at the time of entry into
depository,
 In fungibility, investor has no right to obtain the exact certificate that he has surrendered
at the time of entry into depository,
 Fungibility adds more liquid to securities.
e) Rights
 A depository should be deemed to be the registered owner for the purposes of effecting
transfer of ownership of security on behalf of a beneficial owner,
 The depository as a registered owner should not have any voting rights or any other rights
in respect of securities held by it,
 The beneficial owner is entitled to all the rights and benefits and be subjected to all the
liabilities in respect of his securities held by a depository.
f) Every depository is required to maintain a register and an index of beneficial owners in the
manner provided in the Companies Act.
i) Any loss caused to the beneficial owner due to the negligence of the depository or the
participant, would be indemnified by the depository to such beneficial owner. Where the loss due
to the negligence of the participant is indemnified by the depository, the depository has the right
to recover the same from such participant.
j) Powers of SEBI- Section 19 provides that SEBI after making an enquiry or inspection and if
satisfied may issue appropriate directions
 To any depository or participant or any person associated with the securities; or
 To any issuer;
in the interest of investors or the securities market or to prevent the affairs of any depository or
participant being conducted in the manner detrimental to the interests of investors or the
securities market.
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Depository Establishment
SEBI’s role in establishment
The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in
India. It was established in the year 1988 and given statutory powers on 12 April 1992 through
the SEBI Act, 1992. It was established by The Government of India on 12 April 1988 and given
statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Controller
of Capital Issues was the regulatory authority before SEBI came into existence; it derived
authority from the Capital Issues (Control) Act, 1947.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stock brokers,
R&T agents and non-banking finance companies (NBFC), for granting them a certificate of
registration to act as DP in more than one depository, he should comply with the specified net
worth criterion separately for each such depository. No minimum net worth criterion has been
prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion
for their DPs. Depository System Review Committee (DSRC) was constituted by SEBI to
undertake a comprehensive review of the depository system of Indian Securities market.
SEBI has played a crucial role in and below are few circulars passed by SEBI for the proper
functioning of Depository.
 Companies eligible for shifting from Trade for Trade Settlement (TFTS) to Normal
Rolling Settlement
Stock exchanges may consider shifting the trading in these securities to normal Rolling
Settlement subject to the following:
a) At least 50% of other than promoter holdings as per clause 35 of Listing Agreement are in
dematerialized mode before shifting the trading in the securities of the company from TFTS to
normal Rolling Settlement. For this purpose, the listed companies shall obtain a certificate from
its Registrar and Transfer Agent (RTA) and submit the same to the stock exchange/s. However,
if an issuer-company does not have a separate RTA, it may obtain a certificate in this regard
from a practicing company Secretary/Chartered Accountant and submit the same to the stock
exchange/s.
b) There are no other grounds/reasons for continuation of the trading in TFTS.
c) The Stock Exchanges are advised to report to SEBI, the action taken in this regard in the
Monthly/Quarterly Development Report.
 Delivery Instruction Slip (DIS) Issuance and Processing
a) SEBI has vide circular no. CIR/MRD/DP/ 01 /2014 dated January 07, 2014 introduced
guidelines to strengthen the supervisory and monitoring role of the depositories and their
participants with respect to issuance and processing of Delivery Instruction Slips.
19
b) In light of the difficulties expressed by the depositories and the depository participants (DPs)
and considering their request, it has been decided to make the circular effective from October 01,
2014.
c) Further, with regard to the provision under para 14 that DPs shall not accept old DIS for
execution from a Beneficial Owner (BO) who has been issued new DIS, it is clarified that a
period of one month may be given for receipt of DIS by the BOs. The DPs may accept old DIS
during this transit period. Further, while issuing new DIS the DPs shall intimate the BO that old
DIS cannot be used after the new DIS is received.
d) The depositories shall ensure the implementation of the above within the stipulated timelines.
Other provisions of the circular would remain unchanged.
 Dispatch of physical Statements to BOs having Zero Balance and Nil Transactions
a) SEBI had vide circular no. CIR/MRD/DP/ 22 /2012 dated August 27, 2012 introduced the
facility of Basic services Demat Account (BSDA) wherein inter alia it was mandated that one
annual physical statement of holding shall be sent to the Beneficial Owners(BOs) having zero
balance and Nil transaction.
b) Based on the representations from the Depositories and Depository Participants, the relevant
provisions of the aforesaid circular are modified as under:
Clause 5 (b) (i)
DP shall send atleast one annual physical statement of holding to the stated address of the BO in
respect of accounts with no transaction and nil balance even after the account has remained in
such state for one year. The DP shall inform the BO that the dispatch of the physical statement
may be discontinued if the account continues to remain zero balance even after one year.
Clause 6 (a)
Accounts with zero balance and nil transactions during the year: DP shall send atleast one annual
physical statement of holding to the stated address of the BO in respect of accounts with no
transaction and nil balance even after the account has remained in such state for one year. The
DP shall inform the BO that if no Annual Maintenance Charge (AMC) is received by the DP, the
dispatch of the physical statement may be discontinued for the account which continues to
remain zero balance even after one year.
A depository is an organisation which holds securities of investors in electronic form at the

request of the investors through a registered Depository Participant. There can be three types of
depository accounts and they are
 Beneficiary account- An investor who wants to hold securities in dematerialised (demat)
form and receive or deliver securities by inter-account transfers must have a depository
account called beneficiary account with a DP of his choice.
 Clearing Member account- Member brokers of those stock exchanges which have
established electronic connectivity with any of the depositories need to open a clearing
member account, with a DP of his choice, to clear and settle trades in the demat form.
This account is popularly known as Settlement account or Pool account. This account is
20
meant only to transfer securities to and receive securities from the clearing corporation/
house and hence, the member broker does not have any ownership (beneficiary) rights
over the shares held in such an account.
 Intermediary account- Any person choosing to act as an approved 'intermediary' for stock
lending and borrowing needs to open an intermediary account with any DP of his choice.
An intermediary account may be opened with the DP only after the intermediary has
obtained registration from the Securities & Exchange Board of India and with the prior
approval of NSDL. This account is meant only to deposit the securities received from the
lender and lend them to the borrower under stock lending and borrowing scheme. The
intermediary does not have any ownership (beneficiary) rights over the shares held in
such an account.
Depositories also provide services related to transactions in securities. At present two

Depositories viz.
 National Securities Depository Limited (NSDL) and

 Central Depository Services (I) Limited (CDSL) are registered with SEBI.
An Introduction to NSDL
NSDL, the first and largest depository in India, established in August 1996 and promoted by
institutions of national stature responsible for economic development of the country has since
established a national infrastructure of international standards that handles most of the securities
held and settled in dematerialized form in the Indian capital market. Although India had a vibrant
capital market which is more than a century old, the paper-based settlement of trades caused
substantial problems like bad delivery and delayed transfer of title till recently. The enactment of
Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository
in India.
Using innovative and flexible technology systems, NSDL works to support the investors and
brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of
Indian marketplaces by developing settlement solutions that increase efficiency, minimise risk
and reduce costs. NSDL plays a quiet but central role in developing products and services that
will continue to nurture the growing needs of the financial services industry.
In the depository system, securities are held in depository accounts, which is more or less similar
to holding funds in bank accounts. Transfer of ownership of securities is done through simple
account transfers. This method does away with all the risks and hassles normally associated with
paperwork. Consequently, the cost of transacting in a depository environment is considerably
lower as compared to transacting in certificates. NSDL is promoted by Industrial Development
Bank of India (IDBI) - the largest development bank of India, Unit Trust of India (UTI) - the
largest mutual fund in India and National Stock Exchange (NSE) - the largest stock exchange in
India. Some of the prominent banks in the country have taken a stake in NSDL.
21
An Introduction to CDSL
CDSL was set up with the objective of providing convenient, dependable and secure depository
services at affordable cost to all market participants. Corporates / Companies which issue any
kind of security are known as 'Issuer' in the depository system. Only those securities, which are
admitted into the CDSL system are available for dematerialization to the holders of such
securities or can be allotted in electronic record form by the issuer. Securities include shares,
debentures, bonds, commercial paper (C.P.), certificate of deposits (C.D.), pass through
certificates (PTCs), government securities and mutual fund units. Both listed and unlisted
securities can be admitted into the CDSL system. CDSL functions as the
central accounting and record keeping office in respect of the securities admitted by issuer
companies.
Before the admission of any security into the CDSL system, it is necessary for the issuer to
establish an electronic connectivity with CDSL either directly or through a registrar and transfer
agent (RTA), who has already established connectivity with CDSL. All leading RTAs have
already established electronic connectivity with CDSL. The procedure and CDSL charges to
obtain direct connectivity by an issuer are similar to that as for a RTA. It may please be noted
that SEBI, vide its circular dated 27-12-2002, has advised issuers that "all the work related to
share registry in terms of both physical and electronic should be maintained at a single point i.e
either in-house by the company or by a SEBI registered R & T Agent".
At CDSL, data is centrally stored with state-of-the-art systems and having a 'Disaster Recovery
Site' facility as back up. The centralised database architecture of CDSL places it in a unique
position to provide issuers up-to-the-moment details of holdings of the security.
Investor Awareness by CDSL: - CDSL conducted 171 Investor Awareness Programs (IAPs) for
educating investors during FY 2013-14. This initiative allowed investors across geographies,
professions and age groups to come together and learn the basics of demat and capital markets.
Although, these IAPs reach out to investors in the major metros, it is more focused on tier-2 and
tier-3 cities as more accounts are expected from such centers.
A Comparative Study: NSDL vs. CDSL
Basics of NSDL & CDSL
Table 1: showing few basics of NSDL & CDSL

Particulars NSDL CDSL
Date of establishment November, 1996 February, 1999

Promoted by NSE, UTI, & IDBI BSE, BOB, BOI, SBI &
HDFC Bank
No. of Depository Participants 273 574
Beneficiary accounts 13,708,445 96,10,002
Depository custody value Rs. 1,17,48,315 Rs. 1,39,42,630
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Shareholding Pattern
Table 2: showing the shareholding pattern of NSDL & CDSL

NSDL CDSL
Category Percentage of Category Percentage of
shareholding shareholding
Banks 54 Banks 44
Foreign banks 14 Stock Exchanges 55
Stock Exchanges 32 Others Negligible
(including other
financial
institutions)
Total 100 Total 100
Figure 4: Pie-chart showing the shareholding pattern of NSDL & CDSL
NSDL
CDSL
1%
Banks
32% Banks
Foreign banks 44% Stock
54% Exchanges
Stock exchange 55%
14% Others
Financial Highlights
Table 3: showing the financial highlights of NSDL & CDSL

Particulars NSDL (in crores) CDSL (in crores)
2012-13 2013-14 2012-13 2013-14
Profit before tax 34.52 51.65 53.065 51.64
Provision for tax 17.1 17.1 13.55 9.55
Profit after tax 20.52 39.95 41.099 41.403
Proposed Dividend 10 10 20.9 20.9
Tax on Dividend 1.7 1.7 3.552 3.552
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Interpretation:
NSDL- the Profit before Tax (PBT) for the Financial Year 2013-14 was Rs. 51.65 crores as
against Rs. 34.52 crores for the Financial Year 2012-13. The Company had made provision for
Tax of Rs. 11.6 crores after writing back earlier year provision of Rs. 2.8 crores and profit
available for appropriation stood at Rs. 40 crores. Further, as required under SEBI (Depositories
and Participants Amendment) Regulations, 2012, 25 percent of the Profits i.e. Rs. 12.9 crores has
been set aside to be contributed to the Investor Protection Fund (IPF). Directors have
recommended a dividend of 25 % i.e. Rs. 2.5 per share for FY2013-14 for consideration of the
shareholders. The dividend distribution would result in a cash outflow of Rs. 11.7 crores
including tax on dividend of Rs. 1.7 crores (Payout ratio of 29 %).
CDSL- the Company registered a gross income of 105.45 crores, an increase of 1% over the
previous year. The income from operations comprising of transaction charges, annual issuers
fees, account maintenance charges, settlement charges, corporate action charges, etc. increased to
75.439 crores from 75.355 crores, recording a increase of 0.11% over the year 2012-13. As per
SEBI (Depositories & Participants) (Amendment) Regulations, 2012, transfer of 12.91 crores is
made to investor protection Fund. After contribution to Investor protection Fund, Profit Before
Tax (PBT) for the year ended March 31, 2014 decreased to 51.64 crores from 53.06 crores of
previous year, a fall by 2.69%. However, Profit After Tax (PAT) has increased to 41.4 crores
from 41.10 crores, a marginal rise by 1%.
New Initiatives:-
NSDL:-
 e-Voting: NSDL has been given the mandate by Ministry of Corporate Affairs for
providing and supervising electronic platform for e-Voting for shareholders of
companies. Through this platform shareholders can cast their votes electronically in
respect of resolutions of companies to be passed by postal ballots or at general meetings.
As on 31 March 2014, 285 companies have signed agreement with NSDL for availing e-
Voting facility as against 141 companies as on 31 March 2013, indicating a 102% growth
year on year.
 IDeAS: Internet-based Demat Account Statement is a facility for clients and Clearing
Members of Participants to view balances and transactions in their depository accounts.
During FY 2013-14, number of clients using IDeAS facility increased to 2,86,044 from
2,34,932 indicating a year on year growth of 22% as compared with a growth of 5% in
the previous year.
 TRADeS: (Transaction Related Alerts of Demat account received through SMS) SMS
Alert facility of NSDL provides important updates to Clients on their mobile phones
about their depository accounts, which facilitates risk mitigation and provides value
added services. As on 31 March 2014, 100 lakh investors, which is 77% of depository
accounts held with Participants of NSDL, were registered for using this service.
 SPEED-e: is an internet based facility for submission of instructions by clients and
Clearing Members (users) to the participants. During FY 2013-14, 33.77 million
instructions were received through SPEED-e as compared to 32.72 million instructions in
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the previous year. About 96% of the instructions received through SPPED-e are digitally
signed using E-Token.
 Corporate Social Responsibility (CSR): NSDL believes in providing efficient and cost
effective services to the users of the system and it endeavors to make positive impact on
stakeholders but also over the society to the extent feasible.
CDSL:-
 e-Voting: As on 31 March 2014, 271 companies have signed agreements with CDSL to
conduct e-Voting. Out of these 271 companies, 142 companies pertain to the Top 500
listed companies as mandated by SEBI. CDSL has on the e-Voting system recorded 158
instances of voting carried out by 114 Companies. Ministry of Corporate Affairs has
issued a notification dated 27th March 2014 stating that 'every listed company or a
company having not less than one thousand shareholders, shall provide to its members
facility to exercise their right to vote at general meetings by electronic means'. This is
expected to give a fillip to the e-Voting system as more companies would be signing up
and we would have larger participation.
 e-Notices: In light of Green Initiative in the Corporate Governance by Ministry of
Corporate Affairs, CDSL has started offering the services to companies for sending
documents to its shareholders electronically. As on 31 March, 2014, a total of 68
companies have signed for availing the services.
 Corporate Social Responsibility (CSR): The Companies Act, 2013 has come into
existence on 29 August, 2013 and is being implemented in phases by issuance of
notifications by the Ministry of Corporate Affairs (MCA). MCA vide its circular dated 27
February, 2014 notified Section 135 and Schedule VII of the Companies Act 2013
relating to Corporate Social Responsibility (CSR) the provisions of which came into
effect from 1 April, 2014. The CSR provisions are to be implemented from the financial
year 2014 – 15. In this regard the Board has constituted a Committee for formulation and
implementation of CSR Policy in the Current Financial Year 2014-15.
Opportunities & threats:
NSDL: is the first largest Depository in Indian Capital Market with an overwhelmingly high
market share of more than 89% in terms of custody value of dematerialized securities. Business
of the company is mainly consisting of depository operations and allied services.
 Opportunities: The depository derives its business mainly from activities in the Primary
and Secondary Capital Markets. Buoyant capital market conditions increase volumes at
the depository.
 Threats: When capital markets are weak, the volumes are also depressed. Further, like
other business, depository also faces business competition. However, the company takes
business competition as an opportunity for improvement and betterment of services to
investors, rather than as a threat.
CDSL: The competitive advantage in the services which CDSL offers will set it apart as the
depository of choice. Through efficient systems and processes and a customer centric approach,
CDSL aims to be both differentiated and relevant to the needs of the investor. This is being done
25
by focusing on increasing efficiencies, continuing investment in technologies, robust risk
management systems and maturing young products / services.
 Opportunities: - SEBI has already made it mandatory for the top 500 companies to
register for e-Voting with one of the depositories, in case of any postal ballots. Although
CDSL has been offering e-Voting facility free of cost to issuer companies from
November 2009, it has started levying a fee for e-Voting with effect from November
2013, which would result in some income under this head.
 Threats: - After the meltdown in global financial markets in 2008, retail investors'
confidence has been dented sharply in capital markets. This has resulted in the share of
financial savings within households declining, while that of physical savings has risen,
coinciding with the increased demand for gold and real estate. Given the interest rate
climate in the last couple of years, its proportion within household financial savings has
risen to over 50%. Conversely, the proportion of savings in equity shares declined,
mirroring sentiments. This had a direct impact on the settlement volumes on the
exchanges, and the continuation of such a situation remains a major concern as it will
directly impact the number of billable transactions. Although the stock markets have
witnessed a bull run during Q4 of FY 2013-14, the numbers of billable transactions have
actually reduced as compared to the previous year. During FY 2013-14, 22 DPs
surrendered their DP registrations while many existing DPs have closed down unviable
branches. With adverse market conditions, the revenues of our DPs have also dipped
considerably due to low market volumes. Many DPs are finding it unviable to remain in
this business due to increase in compliance and operational costs and therefore, surrender
their DP registrations. DPs are the face of the depository for BOs and a continuation of
this trend will severely dent the availability of demats services.
Table 4: Examples of Depository Participants registered under each Depository

NSDL CDSL
Depository Registration Number Depository Registration Number
Participants Particpants
ADG Securities Pvt. IN-DP-NSDL-340- Angel Broking Pvt. IN-DP-CDSL-234-
Ltd. 2011 Ltd 2004
Bank Of India Bank Of India Bank of India IN-DP-CDSL-117-
2000
Canara Bank IN-DP-NSDL-27-97 Capital First IN-DP-CDSL-687-
Securities Ltd. 2013
Dalmia Securities IN-DP-NSDL-25-97 Dalmia Securities DALMIA
Pvt. Ltd. Ltd. SECURITIES LTD
Frontline Capital IN-DP-NSDL-56-98 Edelweiss Securities IN-DP-CDSL-226-
Services Ltd Ltd 2004
. East India IN-DP-NSDL-33-97 Finquest Securities IN-DP-CDSL-380-
Securities Ltd Pvt. Ltd. 2006
Geojit BNP Paribhas I IN-DP-NSDL-24-97 Geojit BNP Paribas IN-DP-CDSL-648-
Financial Services Financial Services 2012
26
Ltd. Ltd.
HDFC Bank Ltd. N-DP-NSDL-15-96 HDFC Bank Ltd. IN-DP-CDSL-25-99
ICICI Bank Ltd. IN-DP-NSDL-20-97 ICICI Bank Ltd. IN-DP-CDSL-42-99
Indiabulls Securities IN-DP-NSDL-184- Indiabulls Securities
IN-DP-CDSL-204-
Ltd. 2000 Ltd. 2003
Kotak Securities Ltd. IN-DP-NSDL-23-97 Kotak Securities LtdIN-DP-CDSL-158-
2001
Reliance Securities IN-DP-NSDL-363- Reliance Securities IN-DP-CDSL-357-
Ltd. 2013 Ltd 2006
State Bank of India IN-DP-NSDL-08-96 State Bank of India IN-DP-CDSL-80-2000
Qualified Depository Participants (QDPs)
An investor or investment fund that is from or registered in a country outside of the one in which
it is currently investing. The term is used to refer to outside companies investing in the financial
markets of India. International institutional investors must register with the Securities and
Exchange Board of India to participate in the market. One of the major market regulations
pertaining to FIIs involves placing limits on FII ownership in Indian companies. A foreign
investor can demat its shares through a QPD only.
To become a qualified Depository Participant, a SEBI registered DP shall fulfill the following:
 DP shall have net worth of Rs. 50 crore or more,
 DP shall be either a clearing bank or clearing member of any of the clearing corporations
 DP shall have appropriate arrangements for receipt and remittance of money with a
designated Authorised Dealer (AD) Category - I bank
 DP shall demonstrate that it has systems and procedures to comply with the FATF
(Financial Action Task Force) Standards, Prevention of Money Laundering (PML) Act,
Rules and SEBI circulars issued from time to time and
 DP shall obtain prior approval of SEBI before commencing the activities relating to
opening of accounts of QFI.
Table 5: few examples of Qualified Depository Participants
QDPs of NSDL QDPs of CDSL

Reliance Securities Axis Bank
Sharekhan Bank of India
SMC Global Securities Dalmia Securities
Stock Holding Corporation India Edelweiss Securities
NJ India Invest Geojit BNP Paribas Financial Services
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Bank and Depository
A financial institution licensed as a receiver of deposits. There are two types of banks:
 Commercial/retail banks
 Investment banks
Banks are regulated by the national government or the central bank of a country.
Commercial banks are mainly concerned with managing withdrawals and deposits as well as
supplying short-term loans to individuals and small businesses. Consumers primarily use these
banks for basic checking and savings accounts, certificates of deposit and sometimes for home
mortgages. Investments banks focus on providing services such as underwriting and corporate
recognization to institutional clients.
To draw analogy, the Depository system functions very much like the banking system. In both
systems, the transfer of funds or securities happens without the actual handling of funds or
securities. Both the banks and the Depository are accountable for safe keeping of funds and
securities respectively. The difference between a bank and depository is as follows:
Table 6: showing difference between a bank and a depository

Point of Difference Bank Depository
Opening of accounts A minimum balance has to be A demat account is opened by

deposited along with the an investor without any
account opening form securities, i.e. with zero
balance.
Customer having account Account holder Beneficial Owner (BO)
Usage of funds A bank is entitled to use funds A depository is not entitled to
lying in the savings or current use the securities lying in the
deposit accounts of the demat accounts of the
customers in the normal customers and hence does not
course of business and pays pay any interest to them.
interest to them for the use.
Mode of operation A bank account can be A demat account can be
operated upon “jointly”, or, by opened, operated upon only by
“either or survivor” of the ALL the account holders
account holders or by “any JOINTLY, at present.
one/two/three of", the joint
account holders.
Addition or Deletion of names Permitted Not permitted
Agreement There is no requirement of The beneficial owners is
execution of an agreement required to sign a DP-BO
between the bank and account agreement before opening the
holder at the time of opening demat account.
the account
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Process of Dematerialization
Demat account is an account where all the shares are purchased by an investor are accounted in
the electronic form. Hence, it is mandatory for an investor to have a demat account in order to
trade in stock market. Banks and brokerage firm’s offer demat account services.
 Demat Account for a minor- Demat account can be opened in the name of a minor. The
account will be operated by a guardian till the minor becomes major, Guardian has to be
the father or in his absence mother. In absence of both, father or mother, the guardian can
be appointed by court. But, a minor cannot be a joint holder in a demat account.
 Demat Account for a Trust- If the trust is registered under the Public Trust act 1860 /
Societies Registration act / Bombay Public Trust act / public trust act in force in the state,
then a demat account can be opened in the name of a trust. If the trust is a private or
unregistered trust then a demat account shall be opened in the name of trusties as an
individual account. If the trust has more than three trusties, then they will have to decide
in whose name the demat account will be opened.
 HUF Accounts- HUF stands for Hindu Undivided Family. It is a demat account opened
for managing securities of a family. The account is managed by any one member of the
family, generally the ‘Karta’ or the male member of the family. HUF account can be
opened in the name of the HUF entity as it appears on the HUF PAN card such as A B C
& SONS HUF, Existing Karta, or Deceased Karta. HUF account cannot be opened with
joint holder(s) an neither can it appoint a nominee.
 NRI Accounts- Non- Resident Indian [NRI] means a ‘person resident outside India’ who
is a citizen of India or is a ‘person of Indian origin’. NRI/PIO can open a demat account
with any DP of CDSL. The NRI/PIO needs to mention the type [‘NRI’ as compared to
‘Resident’] and the sub-type [‘Repatriable’ or ‘Non-Repatriable’] in the account opening
form collected from the DP.
Today, 99% settlement of shares takes place through demat mode only so it is advisable to open
a Demat account to trade in the exchanges. As there were physical securities prevailing in the
market therefore it is necessary to dematerialize the physical certificate of shares. The process of
dematerialization is as follows:
 Investors surrenders certificates for dematerialization to DP
 DP informs depository of the request through system
 DP submits the certificates to the registrar
 Registrar confirms the dematerialization request from depository
 After dematerializing, registrar updates accounts and informs depository about the
completion of dematerialization
 Depository updates its account and informs DP
 DP updates its account and informs investors
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Documents required to open a Demat account
KYC (Know Your Customer) is a customer identification process, which is done to prevent any
criminal activity. SEBI has made it mandatory to fulfill the KYC norms in order to open a demat
account. 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:
 Identity Proof
PAN Card - mandatory
Passport
Voter ID card
Driving License
 Address Proof
Passport
Driving License
Ration Card
Telephone Bill
Electricity Bill
Bank Passbook
 Other Requirement
Demat A/c Opening Charges
DP(Bank) may insist for opening a
Simultaneous SB A/c
Figure 5: showing the main documents required to open a demat account
Identity
Proof
KYC
Other
Address require-
Proof ment
30
The steps to open a Demat account are as follows:-
Step 1: To open a demat account, an investor have to approach a depository participant (DP), an
agent of depository, and fill up an account opening form. The list of DPs is available in the
websites of depositories: CDSL (Central Depository Services (India) Ltd and NSDL (National
Securities Depository Ltd).
Step 2: Along with the account opening form, you must enclose photocopies of some documents
for proof of identity and proof of address.
Step 3: You will have to sign an agreement with DP in the depository prescribed standard
format, which gives details of rights and duties of investor and DP. You are entitled to receive a
copy of the agreement and schedule of charges for future reference.
Step 4: The DP will then open an account and give you the demat account number. This is also
called beneficial owner identification number (BO ID). All your purchases / investments in
securities will be credited to this account. If you sell your securities, your demat account will be
debited.
Figure 6: showing the steps involved to open a demat account
Investor Depository Participant
Issuer/RTA Depository
31
Fundamentals of Demat account
Demat account is an account offered by a bank in its capacity as a depository participant. The
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.
Figure 7: showing the fundamental facts of demat account
Multiple demat accounts can be opened
No account opening charges
Can have maximum 3 account holders
No changes in account holder's names
Can have nil balance
The key criterions for selecting demat accounts
 Purpose/usage. In short, how frequently one is going to buy/sell and is it intraday or

delivery based. One has to choose the Broker whose charges are lowest according to
transaction style.
 A complete solution (trading account, demat account and a bank account) should be
looked into and not just one individual product like a demat account. After all, the money
in the savings account will be linked to trading account for buying/selling shares and the
trading account will be linked to demat account for storing the shares. Suppose someone
has a Savings account with Bank A, and the trading account with Broker B and Broker B
trading account does not have a partnering arrangement with Bank A, the person will be
forced to open a new savings account with a bank which has partnering arrangement with
broker B. Usually, most non-bank brokerages have tie-ups with the popular banks for
savings bank accounts and demat accounts, but brokerages in a banking group company
may have only the same bank as its partner.
 Thinking for long term. In case of a demat account with existing shares in it and want to
move to another demat account, transfer of shares is chargeable. Brokers may charge
based on number of shares or amount worth or anything. So it is better to find out what
this amount is.
 Technology. Some online stock brokers do a great job in making sure that their clients
can always access their accounts, and in turn buy and sell as quickly as possible. But on
32
the other side of things, not all brokers run this smoothly. Due to excess demands on the
system, some brokers have a slower load time than others. In fact, this can lead to the
server becoming bogged down. This is not common as it once was, but still this can
happen.
 Service. With the demand increasing on discount stock brokers, it is common for errors to
occur from time to time. If a mistake is noticed in an account, it is important that to
contact the customer support team right away. This will help to ensure that the issue gets
worked out before it causes a snowball effect on the account. In most cases, the broker
working will be apologetic for the mistake, and will do whatever it takes to get the issue
resolved within a matter of minutes. Also, one should notice the level of personal service
that a stockbroker provides as a final step in the selection process. Every investor should
be assigned a specific broker or representative to contact at any time.
Transfers and Transactions in a Demat Account through Delivery Instruction Slip (DIS)- A
demat account is equivalent to a bank account. Here, the securities are kept as balance in your
account which can be later sold or transferred as per requirement.
Transaction of Securities can be:
 On Market transfer- Any transaction for sale and purchase of securities through a broker
on the stock exchange to be settled through Clearing Corporation / Clearing House is
generally termed as On Market transaction.
 Off Market transfer- is one which is settled directly between two Demat Account Holders
without using the broker and where no Clearing Corporation / Clearing House is
involved.
 Inter-depository transfer- Transfer of securities from an account in one depository to an
account in another depository is termed as an inter-depository transfer. This facility is
quite similar to the account transfers within NSDL.
All demat transactions involve use of Delivery Instruction Slips (DIS). These are equivalent to
Cheque Book and must be kept in safe custody. Upon submission of DIS, the Depository
Participant processes the DIS and debits the clients account with the said number of shares.
Simultaneously, the target demat account is credited with the same number of shares. High-value
transactions, where the value of the securities exceeds `5 Lac, will be verified by the depository
participant to keep a check on fraudulent transfers.
How to fill a Delivery Instruction Slips:
 Bank DP-ID and A/c No.: Your DPID and the A/c no. should be pre-stamped before the
booklet is issued to you. If the same is not pre-stamped, immediately bring it to the notice
of the Branch Officer.
 Date: Specify the date of submitting the TIFD. This can be different from the 'Execution
Date'.
 Market Trades: This portion is to be filled up only in case of Market trades (i.e. for
transfer to a Clearing Member/Broker's pool a/c. Confirm these details with the Broker.
Strike out this portion in case of off-market trades.
 CM-BP-Id: Specify the CM BP ID of the broker to whose pool account securities are to
be transferred.
33
 CM Name: Specify the full name of the broker to whose pool account securities are to be
transferred.
 Market Type: Specify the market type on which the trade was done by your broker.
Specify the settlement no. on which the trade was done by your broker
 Settlement No.: The TIFD should be executed before the pay-in deadline for the
settlement no.
 DP-Id: Specify the DPID of the Depository Participant with whom the target account is
maintained.
 DP Name: Specify the name of the DP of the target account (not the target account
holder).
 Client-Id: Specify the Client ID of the target account.
 ISIN: Specify the ISIN of security to be transferred. Confirm this with your transaction
statement/your Broker. Be careful in specifying the correct ISIN where a security has
multiple ISINs.
 Security Name: Specify the name of the security to be transferred.
 Quantity (in Figures and words): Specify the quantity in figures and in words
 Total ISINs to be delivered: Specify the total no. of ISINs to be delivered. This is
required to safeguard against unauthorized alteration. Strike out the unused space for
ISINs.
 Execution Date: Specify the date on which the securities are to be transferred. Please fill
this up in consultation with your broker. Submit the TIFD well in advance to avoid
failure in execution. TIFDs accepted on the working day just prior to the execution date
or on the execution date are executed on 'Best Effort' basis and at your risk. Late charge
is applicable on TIFD submitted on the execution date.
 Signature: The holders should sign in the order of their names in the account. The
signature should match with that recorded as the specimen signature with ICICI Bank.
Authenticate all alterations on the form with your full signature.
Power of attorney (POA)-

Power of Attorney (POA) is legal documents giving legal authority to another person to operate
demat account as per the instructions contained. it’s not compulsory, but required for smooth
operation of demat account. There can two types of POA and they are:
 Specific POA - states the limited range of powers of the POA
 General POA is generic.
While trading futures and options or intraday equity trading, there is no requirement of the POA.
When opening a demat account with an online broker would have had to sign a POA (Power of
Attorney). When someone buys shares, be it in an online or offline account, the shares are
automatically transferred to your demat account, you don’t need a POA to do this.
When someone sell shares or want to pledge them, that is when the shares are going out of your
demat account, this is when the POA is required if it has to be done online. POA was introduced
for smooth operation of the demat account. With the power of the POA, everytime you sell
shares the broker uses it to debit the shares from your demat account and provide it to the
exchange. POA is also used to debit shares from your demat account when you intend to pledge
them to get collateral margin for trading futures and options.
.
34
Benefits of Dematerialization
The benefits of dematerialization are enumerated as follows:
a) Easy and convenient way to hold securities

b) Immediate transfer of securities
c) No stamp duty on transfer of securities
d) Safer than paper-shares (earlier risks associated with physical certificates such as bad
delivery, fake securities, delays, thefts etc. are mostly eliminated)
e) Reduced paperwork for transfer of securities
f) Reduced transaction cost
g) No "odd lot" problem: even one share can be sold
h) Change in address recorded with a DP gets registered with all companies in which
investor holds securities eliminating the need to correspond with each of them separately.
i) Transmission of securities is done by DP, eliminating the need for notifying companies.
j) Automatic credit into demat account for shares arising out of bonus/split,
consolidation/merger, etc.
k) A single demat account can hold investments in both equity and debt instruments.
l) 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.
Benefit to the Country
The depository system helps the capital market to be more liquid, attracting more foreign
investors and is in compliance with international standards, as it creates efficient and risk-free
trading environment. It minimizes the settlement risks and frauds in carrying out transactions in
capital markets and thus can restore faith of investors in capital markets. It helps to reduce delay
in trading practices creating investor friendly atmosphere in the capital markets
35
Fee Structure
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 and AXIS Bank, do not have one. However, players such as Kotak Securities,
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
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
36
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.
37
Rematerialization
Rematerialization is the process of converting securities held in a electronic form in a demat

account in to paper form i.e. physical certificates.
Procedure for rematerialization
 A BO who wishes to rematerialize balance in his demat account has to fill up a Remat
Request Form (RRF). If the BO has multiple ISINs in his demat account and wishes to
rematerialize all balances then a separate RRF should be submitted for each ISIN.
 The RRF should be signed by all the account holders / POA (if any).
 Completely filled RRF should be submitted to his DP.
 The BO may specify on the RRF whether all the quantity of an ISIN to be included in
only one certificate (Jumbo Lot) or number of shares per certificate.
 The DP will verify the details on the RRF form and enter the same in the CDSL system.
 The system generated Remat Request Number (RRN) is written on the RRF and it is sent
to the Issuer / RTA.
 The Issuer / RTA verify the remat request and confirm the same to CDSL. CDSL will
debit the securities in the BOs demat account to the extent of quantity rematerialized.
 Issuer/ RTA issues securities in physical form to the BO.
In case of request for rematerialization, one does not get back the same certificate(s) that was
dematerialized. The Issuer / RTA will issue new certificate(s). The new certificate/s may be
issued under new folio number or in the existing folio, if investor already has one with the
company.
Figure 8: Process of Rematerialization
Step 1
Investor DP
Step 3
Step 5 Step 2
Company/ NSDL/CD
Step 4 SL
R&T
38
Analysis
Research Methodology
My research was based on exploratory research (sometimes referred to as qualitative research)

and little of quantitative research, though the main focus though was qualitative research.
Therefore, it should not be expected to provide answers to the decision problem that one is
attempting to solve for a client. It can provide very rich, meaningful information but exploratory
research doesn’t provide definitive answers for the overall population. There are two reasons for
this:
 Exploratory research usually involves only a relatively small group of people, and
 These people are almost never randomly selected to participate.
Objective
 Investor Awareness
 Current status of Demat in India
 Investors preference between REMAT and DEMAT.
 To know the satisfaction level of investors
Source of collecting data

I have collected the data from various journals, magazines, and different websites
Research Design
Simple quantitative technique such as percentage method was used. This also helps in accurate
generalization.
39
Delivery based transactions under NSE
Table 7: Delivery based transactions under NSE
Year Volume of shares Volume of shares Percentage of shares

traded (in lakhs) (delivery based) (n deliverable to total
lakhs) shares traded (%)
2014-15 23,25,818.45 6,38,682.99 27.46
2013-14 15,05,133.35 4,23,930.66 28.17
2012-13 16,44,259.26 5,20,009.78 31.63
2011-12 16,05,205.14 4,43,933.72 27.66
2010-11 18,10,910.21 4,98,270.26 27.51
Delivery based transactions under BSE
Table 8: Delivery based transaction under BSE
Year Volume of shares Volume of shares Percentage of shares

traded (in lakhs) (delivery based) (in deliverable to total shares
lakhs) traded (%)
2014-15 6,86,467 4,84,631 58.55
2013-14 4,79,949 2,67,615 55.76
2012-13 5,67,218 2,86,046 50.43
2011-12 6,54,137 3,05,599 46.72
2010-11 9,90,776 4,61,551 40.77
Figure 9: delivery based transactions (in %)
Percentage of shares deliverable to total shares

traded (%)
70
60 58.55
55.76
50 50.43
46.72
40 40.77
NSE
30 31.63
27.51 27.66 28.17 27.46 BSE
20
10
0
2010-11 2011-12 2012-13 2013-14 2014-15
40
Interpretation:
Delivery based trading is the most common form share trading done by most of the stock market
investors throughout the world. In this type of trading the investors have to pay the full price of
the stock and the stocks are deposited in their demat account. There is no predefined time limit in
case of the delivery based trading for selling the stocks. Like all other forms of stock trading
delivery based trading also comes with its pros cons.
Advantages:
The biggest advantage of delivery based trading is that you are not bound with time for selling
the stock. You can hold the stocks for as long as you want. So, you can always hold a stock until
you are getting a significant profit from the investment. Therefore, with delivery based trading
you can always take your time to take a decision and reduce the risk of losses.
When you are making a long term investment with delivery based trading, you can also benefit
from other things like dividends, split of stocks, bonus shares and so on. These are benefits that
the companies offer to their share holders from time to time and you can make significant profit
from these offers if you are holding the stocks for long periods.
Disadvantages:
The biggest disadvantage of delivery based trading is the higher brokerage rate. The brokerage
rate for delivery based trading is relatively higher than the margin trading.
You have to pay the full price of the stock for deliver based trading, whereas; in case of margin
trading you can buy stocks by paying only a part of the stock price. So, in case of margin trading
you can buy more stocks by investing less.
In delivery based trading you can never benefit from short selling. That means you have to hold
the shares before you actually sell them.
These are the benefits and disadvantages of delivery based trading. Whether you invest through
delivery based trading or not solely depends on your financial capacity and willingness to take
risks.
41
Analysis on the Operations of NSDL
a. Client Accounts
Table 9: showing the total client accounts and active client accounts with its growth rate
Year Total Client Accounts (in millions) Active Client Accounts (in millions)
Percentage increase Percentage increase
Upto 2011 19.37 - 11.54 -
2012 20.64 6.56 12.04 4.33
2013 21.75 5.38 12.6 4.65
2014 22.8 4.83 13.06 3.65
Figure 10: showing the total client accounts and active client accounts
25 22.8
21.75
20.64
19.37
20
15 12.6 13.06
11.54 12.04
10
0
2011 2012 2013 2014
Total Client Accounts (in million) Active Client accounts (in million)
42
Figure 11: showing the growth rate of total and active client accounts
Growth Rate
7
6.56
6
5.38
5 4.83
4.65
4.33
4 Total Client Accounts
3.65
3 Active Client
Accounts
2
0
2012 2013 2014
Interpretation:-
NSDL had crossed 1,30,00,000 (One Crore Thirty Lakhs) active demat account. These accounts
hold more than 89% of the value of securities held in dematerialized form in India, indicating
preference and trust bestowed by the investors in maintaining their financial assets with NSDL.
As we see there is an increase every year in the total number of clients which also states that
NSDL is working for the investor awareness.
Upon issuance of notification by the Government of India regarding announcement of Rajiv

Gandhi Equity Savings Scheme, 2012 (RGESS), Participants of NSDL have started activity of
opening RGESS enabled demat accounts, so as to enable “New Retail Investors” to invest in
securities market. As on March 31, 2014,total number of RGESS accounts stood at around
15,629 and the total value of investments made by these RGESS account holders stood at around
Rs. 41 crores.
During FY 2013-14, One million new accounts were opened at NSDL taking total number of
accounts opened till March 31, 2014 to 22.8 million.
The number of active depository accounts increased from 12.60 million to 13.60 million by
March 31, 2014 resulting in a net increase of 0.46 million accounts.
43
b. Status of companies who signed the agreement with NSDL
Table 10: showing the companies that signed agreement with NSDL
Year Issuers
Upto March- 9700

2012
March-2013 10,800
March-2014 12,210
Figure 12: showing the companies that signed agreement with NSDL
14000
12210
12000 10800
9700
10000
8000
6000
4000
2000
0
2012 2013 2014
Issuers
Interpretation:-
During the year, the number of Issuers that signed agreements with NSDL to provide
dematerialization facilities continued to grow and crossed 12,210 in the year 2014 as compared
to 10,800 in the year 2013. All securities forming part of various indices like CNX Nifty, CNX
100, CNX 500, CNX MIDCAP, BSE Sensex, BSE 100 are available for dematerialization at
NSDL.
44
c. Status of Dematerialization of Securities
Table 11: showing the number of securities dematerialized
Year No. of securities dematerialized (in billion)

Percentage increased
Upto January- 580 -
2012
January-2013 686 18.28
January-2014 796 16.03
Figure 13: showing the number of securities dematerialized
900
796
800
686
700
580
600
500
400
300
200
100
0
2012 2013 2014
Status of Dematerialization of Securities
45
Figure 14: showing the growth rate of the number of securities dematerialized
Status of Dematerialized Securities (In %)

18.5
18.28
18
17.5
17
16.5 Status of
Dematerialized
16 16.03 Securities
15.5
15
14.5
2013 2014
Interpretation:-
The number of securities dematerialized increased and stood at around 796 billion in the year
2014, against 684 billion in the year 2013, indicating a growth of 18.28% during the year
d. Asset Value under custody:-
Table 12: showing the value of debt securities and value of all securities dematerialized
Year Value of debt securities (Rs. in Value of all securities
billions) dematerialized (in billions)
Upto 2012 71,323 16,333
2013 76,790 18,675
2014 89,399 20,857
46
Figure 15: showing the value of debt securities and value of all securities dematerialized
100000 89,399
76,790
80000 71,323
60000
40000
18675 20857
16333
20000
0
2012 2013 2014
Value of all securities dematerialized (Rs. In billion)
Value of debt securities
Interpretation:-
For the year 2014, the total value of all types’ securities (viz., equity, debt and G-sec.) under
custody stood at Rs. 89,399 billions as against Rs. 76,790 billion in the year 2013 showing a
growth of 16 percent. The value of debt securities (Debenture, Bonds CPs, CDs, etc.)
dematerialized showed an increase of about 12% and stood Rs. 20,857 billion for the year 2014,
as against Rs. 18675 for the year 3013. In the year 2014, the number of government securities
that were available for dematerialization went upto 805 (720 in the year 2013) and the total value
of Government securities that were dematerialized at NSDL stood at Rs. 136 billion (RS. 124
billion in the year 2013) indicating a growth of over 10%.
e. Settlement volumes
Table 13: showing the settlement quantity (Qty) and settlement value
Year Settlement Qty (in Billion) Settlement Value (Rs. in Billion)

2011 86.42 15472
2012 72.07 12472
2013 73.87 12725
2014 67.19 13519
47
Figure 16: showing the settlement quantity (Qty)
Settlement Qty. (Rs. In billion)

100
90
86.42
80
70 72.07 73.87
67.19
60
50 Settlement Qty.
40 (Rs. In billion)
30
20
10
0
2011 2012 2013 2014
Figure 17: showing the settlement value (Rs. in billions)
18000
16000 15472
13519
14000 12472 12725
12000
10000
8000
6000
4000
2000
0
2011 2012 2013 2014
Settlement Value (Rs. In billion)
Interpretation:-
Ninety-nine percent of the trades carried out on the stock exchanges continued to be settled in
dematerialized form. During the year 2014, the number of securities in dematerialized form at
the stock exchanges through NSDL.
48
Technical Analysis on the Operations of CDSL
a. Beneficial Owner accounts
Table 14: showing the beneficial owner accounts with CDSL and the growth rate of such
accounts
Year BO Accounts Percentage increase
2012 79,17,184 -
2013 83,27,482 5.18
2014 87,77,049 5.40
Figure 18: showing the beneficial owner accounts with CDSL
9000000
8777049
8800000
8600000
8400000 8327482
8200000
8000000 7917184
7800000
7600000
7400000
2012 2013 2014
Benefiary Owner Accounts
49
Figure 19: showing the growth rate of beneficial owner accounts with CDSL
Percentage increase
5.45
5.4 5.4
5.35
5.3
5.25 Percentage
5.2 increase
5.18
5.15
5.1
5.05
2013 2014
Interpretation:
During the year 2014 8.62 lakhs Beneficial Owner (BO) accounts were added, taking the total
number of such accounts to 118.29 lakhs with the net BO accounts at 87.77 lakhs in March 2014.
In the year 2012, 7.52 lakh beneficiary owner accounts were added, taking the total number of
such accounts to 109.67 lakhs and the BO accounts to 83.27 lakhs in March 2013.
b. Securities held by CDSL
Table 15: showing the securities held by CDSL in value and volume
Securities Value (in millions) Volume (in millions)

held
Percentage Percentage
increase/decrease increase/decrease
2012 1,02,55,511 - 133572
2013 98,50,378 -3.76 1,51,793 13.65
2014 10,876,032 10.41 1,77,311 16.81
50
Figure 20: showing the securities held by CDSL in value and volume
12000000 10876032
10255511 9850378
10000000
8000000
6000000
4000000
2000000
133572 151793 177311
0
2012 2013 2014
Value (in million) Volume (in million)
Figure 21: showing the percentage of securities held by CDSL in value and volume
Percentage increase/decrease
20
16.81
15
13.65
10 10.41 Value (%
increase/decrease)
Volume (%
5 increase/decrease)
0
2013 2014
-3.76
-5
Interpretation:
As on 31st March, 2013 577 depository participants held valid registration certificates of SEBI as
compared to 567 valid SEBI registrations as on 31 March 2012. With large number of DP
network, investors spread across 28 states and 7 union territories can avail CDSL’s depository
services. Further investor’s have access to 12,601 DP service centers spread across more than
51
200 cities/towns as on March 2013. CDSL introduced new category of DP “Limited Depository
Participants” (LDP) to facilitate stock brokers having net worth of Rs. 1 crore to become CDSL
DP (with attending restriction on number of accounts etc.) which would lead to increase in
number of number of DPs and widespread availability of CDSL services.
c. Number of Depository Participants (DPs)
Table 16: showing number of DPs registered with CDSL and the increase in percentage from
year to year
Year No. of DPs

2012 566
2013 577
2014 578
Figure 22: showing the no. of DPs registered with CDSL

No. of DPs
580
578
576
574
572
570
No. of DPs
568
566
564
562
560
2012 2013 2014
Interpretation:
To sum up about CDSL, the number have beneficiary accounts have grown. Almost 99% of the
transactions are done with the help of demat account as the securities held by CDSL have also
increased. The number of DPs has also increased. The benefit of the depository system is
significant. Introduction of depositories has improved the market efficiency. The paper
management substantially reduced which helps in saving in time for allotment transfers of
scripts. This improves internal system effectively.
52
Six Popular Depository Participants in India
In India, a Depository Participant (DP) is described as an agent of the depository. They are the
intermediaries between the depository and the investors. The relationship between the DPs and
the depository is governed by an agreement made between the two, under the Depositories Act.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers,
R&T agents and non-banking finance companies (NBFC), for granting them a certificate of
registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he
should comply with the specified net worth criterion separately for each such depository. No
minimum net worth criterion has been prescribed for other categories of DPs; however,
depositories can fix a higher net worth criterion for their DPs.
Figure 23: flow chart showing the link between depository and customer
Depository Depository
Participants (DPs)
ICICI Direct
National Securities
Depository Ltd. Indiabulls
(NSDL) Securities
Customers
HDFC
Central Depository
Securiti
Service Ltd. (CDSL)
es
Others
53
Table 17: showing some of the popular DPs in India and their basic details as a DP
Mode of ICICI Indiabulls Share- HDFC SBI Capital Kotak

Distinction Direct Securities khan Securities Securities
About the ICICI direct Indiabulls ncorporat HDFC Securities Kotak
company is a retail Securities ed in Securities Ltd (SSL) Securities is
February
trading and (ISL) is the 2000,
(HDFC sec) is a 100% a full
investment India-based Sharekha is Equity subsidiary services
service from Stock n is India's Trading of SBI broker part
ICICI Broker. ISL 3rd largest Company of Capital of popular
Securities, is part of stock HDFC Markets India based
broker
the largest Indiabulls (after
Bank. Ltd. Kotak
retail stock Group, a ICICI HDFC Mahindra
broker firm leading Direct and Securities Bank.
in India. business HDFC provide both
house in Securities) online
.
India. trading and
trading on
phone.
Supported BSE, NSE BSE, NSE, BSE, BSE, NSE BSE, NSE BSE, NSE,
Exchange MCX, NSE, MCX-SX,
MCX,
NCDEX NCDEX,
MCX,
NSEL NCDEX
Account 3-in-1 Power Classic Online eZ-trade Kotak
type account Indiabulls Account trading Gateway
Demat First year Rs. 450 Rs. 400 Rs. 300 to Rs. 350 Rs. 600
account free, Rs. 750,
AMC thereafter, depending
Rs. 500 on the
number of
transactions
Brokerage 0.25% to 0.4% of 0.1% of 0.5% of 75p per0.59% to
0.75%, transaction transact- transaction transaction,0.18%,
depending value tion value, delivery depending
on delivery value, delivery based on
transaction based, delivery based 5p pertransaction
value 0.04% of based, 0.05% of transaction,value,
transaction 0.5% of transaction intra-day delivery
value, intra- transact- value, intra- based based 0.06%
day based tion, day to 0.03%
intra-day depending
based on
transaction
value, intra-
day based
Investment Stocks/Equi Stock/Equit Stock/Eq Stocks/Equi Stock/Equit Stocks/Equit
54
options ty, y, Currency, uity, ty, y, y, Currency,
Currency, Commodity, Currency, Currency, Currency, IPO, Mutual
IPO, Mutual IPO, Mutual Commod IPO, Mutual IPO, fund,
fund, fund, ity, IPO, fund, Mutual Bond/NCD
Bond/NCD, Bond/NCD, Mutual Bond/NCD, fund,
Debt Debt fund, Debt Bond/NCD
Bond/NC , Debt
D, Debt
Suitable Casual Active Casual Casual Casual Casual
for Investor Investor, Investor Investor Investor investor,
investor Trader and Active
category Active investor
Investor
a. Number of Clients
Table 18: showing number of clients registered with NSE and BSE
Depository NSE BSE

Participants (DPs)
2014-15 2013-14 2012-13 2014-15 2013-14 2012-13
ICICI Direct 5,70,883 5,00,733 21,03,212 28,25,139 24,54,063 22,02,803
Indiabulls 47,348 46,314 6,07,108 5,95,354 5,93,812 5,90,018
HDFC Securities 3,19,992 2,78,706 13,36,638 17,74,629 15,82,821 13,36,959
SBI Capital 93,450 68,328 2,75,515 4,78,473 3,50,332 2,74,423
Kotak securities 2,53,601 2,23,280 6,74,160 8,87,778 7,89,341 7,12,313
Percentage increase/decrease
Table 19: showing percentage increase/decrease in the number of clients registered with NSE
and BSE
DPs NSE BSE

(2012-13 to (2013-14 to (2012-13 to 2013-14 to
2013-14) 2014-15) 2013-14) 2014-15)
Percentage Percentage Percentage Percentage
decrease increase increase increase
ICICI Direct 76.19 14 11.4 15.12
Indiabulls 92.37 2.23 0.64 0.26
HDFC Securities 79.15 14.81 18.39 12.12
SBI Capital 75.20 38.77 27.66 36.58
Kotak Securities 66.88 13.58 10.81 12.47
55
Figure 24: showing the percentage of number of clients registered with NSE and BSE
Percentage Increase/Decrease
60
38.77
40
20 14 14.81 13.58
2.23
0
ICICI Indiabulls HDFC SBI Capital Kotak 2013-14
-20 Direct Securities Securities
2014-15
-40
-60
-80 -66.88
-76.19 -79.15 -75.2
-100 -92.37
Interpretation:
The above data shows five depository participants and the number of clients they are registered
under NSE and BSE. It is important to see how many people are aware of the investments that
can be done. For every individual savings is not important investment is an equally important
part.
b. Number of complaints received against the DPs:
Indiabulls
Table 20: showing no. of complaints received against Indiabulls under BSE & NSE
Year BSE NSE

2011-12 71 183
2012-13 48 162
2013-14 26 85
2014-15 12 62
56
Figure 25: showing no. of complaints received against Indiabulls under BSE & NSE
Complaints against Indiabulls

200
180 183
160 162
140
120
100 BSE
80 85 NSE
71
60 62
40 48
20 26
12
0
2011-12 2012-13 2013-14 2014-15
Interpretation:-
Indiabulls being one of the popular depository participants still received number of complains. In
2011-12 the number of complains registered under BSE was 71 and the number of complains
registered under NSE was 183. They have come a long way in bringing down the number of
complains and as it stands out in 2014-15, the number of complains have come down to 12 under
BSE and that under NSE is 62. They have worked on the complains and managed to bring down
the complains against them.
Indiabulls Advantage
 Trading Terminal 'Power Indiabulls' is among the best trading terminals available in the
market.
 Indiabulls has its own depository services.
 Wide spread network of local branches and sub brokers make them very accessible.
 Security Tokens are available for people who need additional security of their trading
account.
. Indiabulls disadvantage
 'Power Indiabulls' Trading Terminal comes at a cost of Rs 750 onetime fee.

 Indiabulls Securities doesn't offer 3-in-1 account as the company doesn't provides
banking services.
57
ICICI Direct
Table 21: showing no. of complaints received against ICICI Direct under BSE & NSE
Year BSE NSE

2011-12 59 144
2012-13 81 192
2013-14 62 148
2014-15 20 101
Figure 26: showing no. of complaints received against ICICI Direct under BSE & NSE
Complaints against ICICI Direct

250
200 192
150 144 148

BSE
100 101 NSE
81
59 62
50
20
0
2011-12 2012-13 2012-13 2013-14
Interpretation:
ICICI Direct is one of the popular banks in India. It also services as a depository participant. But
for whatever reason may be it had received number of complaints against it. In 2011-12 the
number of complains registered under BSE was 59 and the number of complains registered under
NSE was 144. They have come a long way in bringing down the number of complains and as it
stands out in 2014-15, the number of complains have come down to 20 under BSE and that under
NSE is 101. They have worked on the complains and managed to bring down the complains
against them. They have tried to improve on the services and tried to become a customer friendly
organization.
ICICI Advantages
 3-in-1 account integrates your banking, broking and demat accounts. All accounts are
from ICICI and very well integrated. This feature makes ICICI the most interesting
58
player in online trading facility. There is absolutely no manual interfere require. This is
truly online trading environment.
 Unlike most of the online trading companies in India which require transferring money to
the broker's pool or towards deposits, at ICICIDirect you can manage your own demat
and bank accounts through ICICIdirect.com. Money from selling stock is available in
ICICI bank account as soon as the ICICIDirect receive it.
 Investment online in IPOs, Mutual Funds, GOI Bonds, and Postal Savings Schemes all
from one website. General Insurance is also available from ICICI Lombard.
 Low bandwidth website is available for slow internet connection or for trading from
mobile devices.
ICICI Disadvantages
 ICICIDirect brokerage is high and not negotiable.

 ICICIDirect doesn't offer commodity trading. With ICICI Trading account you cannot
trade at MCX or NCDEX.
 With ICICIdirect.com e-Invest account(3-IN-1 concept), the Demat Account has to be
opened with ICICI Bank Ltd as the Depository Participant (DP) and the Bank Account
has to be opened with ICICI Bank Ltd. as the Banker.
 ICICI minimum brokerage charge is Rs 35 per trade which is very high for traders who
does small trades.
Kotak Securities
Table 22: showing no. of complaints received against Kotak Securities under BSE & NSE
Year BSE NSE

2011-12 85 163
2012-13 46 197
2013-14 38 188
2014-15 17 110
59
Figure 27: showing no. of complaints received against Kotak Securities under BSE & NSE
Complaints against Kotak Securities

250
200 197
188
163
150
BSE
110
100 NSE
85
50 46 38
17
0
2011-12 2012-13 2013-14 2014-15
Interpretation:
Kotak Securities is one of the depository participants in India. But for whatever reason may be it
had received number of complaints against it. In 2011-12 the number of complains registered
under BSE was 85 and the number of complains registered under NSE was 197. Under BSE the
complains were gradually brought down but under NSE the complains went on rising for 2012-
13. The complains received in 2012-13 was 197. There was an increase of around 20%. They
have come a long way in bringing down the number of complains and as it stands out in 2014-
15, the number of complains have come down to 20 under BSE and that under NSE is 110. They
have worked on the complains and managed to bring down the complains against them. They
have tried to improve on the services and tried to become a customer friendly organization.
Kotak Securities advantages:
 Kotak Securities website provides wide range of investment options. This includes
investment in equity, IPO’s, Bonds, FD’s, ETF’s, Mutual Funds, Currency Derivatives
etc.
 Kotak security offers easy integration of trading account with Citibank, HDFC Bank, UTI
Bank and Kotak Mahindra Bank.
60
Kotak Securities disadvantages:
 Kotak Securities is a Full Services Broker. The brokerage charged by them is higher than
the Discount Brokers.
HDFC Securities
Table 23: showing no. of complaints received against HDFC Securities under BSE & NSE
Year BSE NSE

2011-12 33 56
2012-13 12 50
2013-14 19 73
2014-15 9 40
Figure 28: showing no. of complaints received against HDFC Securities under BSE & NSE
Complaints against HDFC Securities

80
70 73
60
56
50 50
40 40 BSE
30 33 NSE
20 19
10 12
9
0
2011-12 2012-13 2013-14 2014-15
Interpretation:
HDFC is one of the popular banks in India. HDFC securities also serve a depository participant.
The complains received against HDFC in 2011-12 was 56, it declined to 50 in the year 2012-13
but for whatever reason may be in the year 2013-14 there was a sudden increase in the number of
complains. The complains registered under NSE rose from 50 to 73, there was around 46%
increase. The complains registered under BSE rose from 12 to 19, an increase of 58%
approximately. They have improved and brought down the number of complains and as it stands
61
out in 2014-15, the number of complains have come down to 9 under BSE and that under NSE is
40. They have worked on the complains and managed to bring down the complains against them.
They have tried to improve on the services and tried to become a customer friendly organization.
HDFC Securities Advantage:
The 3-in-1 account, which includes HDFC Bank Account, HDFC Securities Trading Account
and HDFC Securities Demat Account, is the best offering for retail investors in India as it
provides easiest way to invest in stock market and other financial instruments.
SBI Securities:
Table 24: showing no. of complaints received against SBI Securities under BSE & NSE
Year BSE NSE

2011-12 32 68
2012-13 21 52
2013-14 23 92
2014-15 18 80
Figure 29: showing no. of complaints received against SBI Securities under BSE & NSE
Complaints against SBI Securities

140
120
92
100 68 80
80
52 NSE
60 BSE
40
32
20 21 23
18
0
2011-12 2012-13 2013-14 2014-15
Interpretation:
State Bank of India is one of the most reputed banks in India. Though it is one of the most
renowned banks still it has several complains registered against it both under BSE and NSE. One
62
of the main difficulties could be the service because irrespective of receiving complains still
there is no much of a change in the number of complains over the years.
Sharekhan
Table 25: showing no. of complaints received against Sharekhan under BSE & NSE
Year BSE NSE

2011-12 86 173
2012-13 42 126
2013-14 43 142
2014-15 18 89
Figure 30: showing no. of complaints received against Sharekhan under BSE & NSE
Complainst against Sharekhan

200
173
150
142
126
100 BSE
86 89
NSE
50 42 43
18
0
2011-12 2012-13 2013-14 2014-15
Interpretation:
Sharekhan is one of the largest stock broker and one of the popular depository participants in
India. But it had received number of complaints against it. In 2011-12 the number of complains
registered under BSE was 86 and the number of complains registered under NSE was 173. Under
BSE the complains were gradually brought down. Under NSE the complains went down in the
year 2012-13 to 126 but in 2013-14 the complains registered against Sharekhan rose to 142.
There was an increase of around 12%. They have come a long way in bringing down the number
of complains and as it stands out in 2014-15, the number of complains have come down to 18
under BSE and that under NSE is 89. They have worked on the complains and managed to bring
down the complains against them.
63
Sharekhan Advantages:
 Sharekhan offers different trading platform to suite customer requirement. This includes
online browser based trading, Installable terminal, mobile, call n trade and in-person
trade though branch offices.
 It offers different brokerage slabs to suit individual customers. Higher your trade your
brokerage gets reduced. They have multiple brokerage schemas are available with them.
 Sharekhan offers online and classroom training, seminars and workshops to investors.
 Sharekhan doesn't charge for DP transactions. Share transfer from and to the dp account
is free.
 Call & Trade facility is free with Sharekhan.
 Sharekhan allows fixed deposit as collateral for future and option trading.
Sharekhan Disadvantages:
 Sharekhan doesn't offer 3-in-1 account as they don't provide banking services.
 They brokerage charges are % based which are higher in comparison to flat fee brokers.
 They charge minimum brokerage of 10 paisa per stock would not let you trade stocks
below 20 rs.
 Classic account holders cannot trade commodities
 Facility to place orders after trading hours is not available.
With most DPs imposing stiff minimum charges on retail investors, It is important to have a
close look at the portfolio and the size of transactions and accordingly choose a Depository
Participant (DP), through which retail investors can access a depository and which would give
the best deal. It would be ideal to go for a DP which not only has the lowest annual charges but
the lowest flat minimum charge too.
64
A Case Study on Activities of dematerialized shares in National Aluminum Company Ltd.
(NALCO)
National Aluminium Company Limited (NALCO) is a Navratna Central PSU under Ministry of
Mines, Govt. of India. It was established on 7th January, 1981, having its registered office at
Bhubaneswar. The Company is a group ‘A’ PSU having integrated and diversified operations in
mining, metal and power with sales turnover of Rs 7024 crore in financial year 2013-14.
Presently, Government of India holds 80.93% equity of NALCO.
The public sector National Aluminium Company (Nalco) had entered into an agreement with the
National Security Depository Ltd (NSDL) and CDSL to establish connectivity so far as
dematerialization of its shares and subsequent transactions thereon.
The move was made to facilitate faster and efficient settlement of shares by eliminating paper-
based trading. The new system envisages settlement of shares through dematerialization process
which helps the company avoid missing certificates in postal transit and manual handling and
chances of bad delivery and forgery of certificates.
In 1995, the number of certificates received for transfer was 10,000 per month, the number rose
to 40,000 per month by 1997. The switch-over to the new system came at a time when the
trading in the company's shares had gone up by four times.
Shareholding Pattern
Table 26: Shareholding pattern as on 31.3.2014
Category No. of No. of shares Percentage of

shareholders shareholding
Promoters 1 208,90,59622 81.06
Mutual Funds 40 67,92,354 0.26
Banks/Financial 37 7,83,47,621 3.04
Institutions
Insurance 8 17,81,42,359 6.91
Companies
FIIs 74 9,80,47,365 3.81
Bodies Corporate 1,063 8,97,06,705 3.48
Indian Public 61,568 3,16,47,866 1.23
Others 2,562 54,64,420 0.21
TOTAL 65,353 257,72,38,512 100
65
Figure 31: showing the shareholding pattern as on 31.3.2014
Percentage of shareholding
Promoters
Mutual funds
Banks/Financial Institution
Insurance Companies
FIIs
Bodies Corporate
Indian Public
Others
Major shareholders as on 31.3.2014
Table 27: showing major shareholders, the number of shares held by them and as a % of paid-up
capital
Name of shareholder No. of shares held % of paid-up

capital
President of India 208,90,59,622 81.06
LIC of India 14,92,66,579 5.79
Franklin Templeton 6,30,10,810 2.44
Investments Funds
Hindalco Industries Ltd. 2,86,67,404 1.11
Dematerialization of listed shares and Liquidity as on 31.3.2014
Table 28: showing the % of demat shares and shares in physical mode as on 31.3.2014
Particulars % to total shares No. of shareholders

Demat shares with NSDL 98.44 43,915
Demat shares with CDSL 1.46 17,114
Shares in physical mode 0.10 4,324
Total 100 65,353
66
Figure 32: showing the % of demat shares and shares in physical mode
Percentage to total shares

2%
Demat shares with

NSDL
Demat shares with
CDSL
Shares in physical
mode
98%
Figure 33: showing the declining trend in physical transfer of shares
180
160
140
120
100
80
60
40
20
0
2008-09 2009-10 2010-11 2011-12 2012-13
Declining trend in physical transfer of shares
67
Interpretation:
NALCO shares are in compulsory dematerialized segment for trading. 99.90% of the Company’s
share capital stands dematerialized as on 31st March, 2014. During the year, the Company has
confirmed 64 dematerialization. The company had also confirmed 3 rematerialization requests
for 96,825 shares during the year. The company has come a long way. There was a time when
the majority of shares were kept in physical mode. Even few employees of the company had kept
their shares in physical mode. But today 99% shares are in demat form. NALCO has done a
commendable job in creating awareness about dematerialization, and they still continue to create
awareness through notices written to their shareholders, especially to that 1 % of the
shareholders who have still kept their shares in physical mode.
SWOT Analysis
Strength Weakness
 skilled and committed manpower,  Non availability of requisite quantity of

 efficient technology, coal at reasonable cost,
 efficient operations,  Escalating production cost including
 production of quality alumina and that of labour,
aluminum product,  fluctuations in the LME prices
 meticulous marketing strategy,
 excellent customer service,
 prudential financial management,
 CSR initiatives
Opportunity Threats
 opportunity exists in the domestic  China’s increase in production has been

market as per capita consumption of putting the aluminium market under
aluminum in India is among the lowest pressure.
in the world standing at 1.4 kg as  Power is one of the major inputs for
compared to the world average about 7 aluminium production, constituting
kg. roughly 40% of the production cost.
 R&D should put efforts to bring in new Substantial increase in cost of coal in
usages and applications, exploration recent past has put additional cost
and collaboration with other industries pressure on aluminium producers in
where aluminum could substitute other India.
materials  The other threat includes competition
from scrap imports, large scale
availability of substitute materials
particularly plastics, and increasing raw
material costs
68
Research Methodology: refer to the search of knowledge. In research methodology one studies
the steps that are generally adopted by a researcher in his research problem along with the logic
behind them.
 Exploratory Research: My study was exploratory in nature and a self administered survey
was being used as a method to complete the study. Exploratory research is conducted to
provide a better understanding of a situation. It isn’t designed to come up with final
answers or decisions. Through exploratory research, researchers hope to produce
hypotheses about what is going on in a situation. The main objective of the survey was to
find out what is the financial literacy level with regards to trading in the stock market in
our country. The Questionnaire was put forth to see how many people are well aware of
how trading takes place in Indian stock market. Today trading is possible only through
demat accounts, therefore the survey was based on the fact to see how many people are
aware of Dematerialization of Securities or Demat account.
 Descriptive Research: Descriptive research studies are those studies which are concerned
with describing the characteristics of a particular individual or a group.
Limitations of the study:
 Number of respondents selected is 80. It is a small group of people as it was not possible
to track down more investor. The results may not be universally aplicable
 The respondents were given multiple choice questions, so they had to select from one of
the options given to them, they could not give their statements on a particular question
The data was collected through an unbiased questionnaire and interview. The questionnaire was
a multiple choice based questionnaire. The Analysis of the Questionnaire survey is as follows:
1. Age
Table 29: showing the age group of the survey
Age Group No. of people

20-30 47
31-40 8
41-50 10
51-60 12
>61 3
Total 80
69
Figure 34: showing the age group of the survey
50 47
40
30
20
10 12
10 8
3
0
20-30 31-40 41-50 51-60 > 60
Age
Interpretation:
The survey is based on 80 people. These people were randomly selected to study the financial
literacy in trading in stocks.
2. Income group
Table 30: showing the income group of the survey
Income range (in Rs.) No. of people

50,000-1,00,000 34
1,00,000-2,00,000 1
2,00,000-3,00,000 3
3,00,000-4,00,000 10
>4,00,000 32
70
Figure 35: showing the income group of the people surveyed
Income range
40
35
30
25
20
15
10
5 Income range
0
Interpretation:
The above data shows that maximum people are in the income group of Rs. (50,000-1,00,000),
followed by Rs. > 4,00,000. The income group of Rs. > 4,00,000 does say that they income
enough to invest their income after meeting their necessary expenses.
3. People investing from their savings

Table 31: Investment from savings
Yes 50
No 30
71
Figure 36: showing people who invest from their savings and people who don’t
People investing from their saving
38% Yes
No
62%
Interpretation:
Out of the 80 people surveyed 50 people invest from their savings which is almost 62% and rest
30 people which counts for 37%, does not invest. The main reason for this 38% of people not
investing is because they are mostly students who do have a proper flow of income.
4. Investment options
Table 32: People surveyed having investment options
Investing options No. of people

Post office 4
Bank 40
Commodities 0
Stock Market 5
Real estate 2
No investment 8
Multiple investment 21
72
Figure 37: surveyed people having investment options
Investment options
5%
Post office
26%
Bank
Stock Market
Real Estate
10% 50%
No investment
Multiple investment
6%
3%
Interpretation:
Out of the people surveyed mostly people invest in banks. There are 26% of the surveyed people
who invest in multiple areas mostly banks, post office and a few in stock market too. Investing in
stock market is around 6%. While collecting the data and interviewing people it was found that
very people invest in stock markets. They know about the trading but not in details.
5. People having trading account

Table 33: People with trading account
Trading account 18
No trading account 62
73
Figure 38: showing people having trading account and people who don’t have a trading account
Trading Account
22%
Trading account
No trading account
78%
Interpretation:
Only 22% of the people surveyed have a trading account. Out of the 80 people surveyed, 78%
people who do not have a trading account, there were people who knew about trading but they
aren’t completely aware of the trading in the stock market.
6. People having Demat Account

Table 34: showing the number of people with demat account
Demat Account 17
No Demat Account 63
74
Figure 39: showing the number of people with demat account
Demat Account
21%
Demat Account
No Demat Account
79%
Interpretation:
As we see in the above figure only 21% of the people surveyed, have a demat account. There is
not enough awareness about Demat account.
7. People having demat account vs. people knowing about demat account
Table 35: People knowing about demat account
People knowing about demat account 45

People having demat account 17
People with no demat account and no 18
knowledge of demat account
75
Figure 40: showing people with demat account vs. people having knowledge of demat account
No. of people
50
45
40
35
30
25
20
No. of people
15
10
5
0
People knowing People having a People with no
about demat demat account demat account
account
Interpretation:
Among the people surveyed, 45 people knew about Demat account. The main reason for not
having a demat account was few being students and few didn’t want to take the risks involved in
the capital market.
8. Depository Participants
Table 36: People using various DPs
Depository Participants No. of people using

Broking House 1
Public financial Institution 4
Scheduled Banks 7
Non banking financial 3
companies
None of the above 2
76
Figure 41: showing the various DPs used by the people surveyed
No. of people using DP services

8
7
6
5
4
3
No. of people using DP services
2
1
0
Broking Public Scheduled Non None of the
House Financial Banks banking above
Institution financial
companies
Interpretation:
Compared to other depository participants seven people preferred scheduled banks as mostly
they offer a 3-in-1 account, i.e., trading account, demat account and bank account. All of the
three are important to trade in stocks. Though they charge little high, but its hassle free.
9. Satisfaction of fee structure

Table 37: showing the no. of people who are satisfied the fee structure of DPs
Yes 14
No 5
77
Figure 42: showing the no. of people who are satisfied the fee structure of DPs
Satisfaction of fee structure
26%
Yes
No
74%
Interpretation:
Maximum people having demat accounts are satisfied with the current fee structure of the Demat
system. Out of the 17 people who have a demat account 14 are satisfied only 5 were not satisfied.
10. AMC charges by DPs

Table 38: showing the no. of people having various AMC charges by their DPs
AMC Charges No. of People

100 – 200 2
200 – 300 4
300 – 400 7
400 – 500 4
> 500 1
78
Figure 43: showing the no. of people having various AMC charges by their DPs
No. of people
8
7
6
5
4
No. of people
3
2
1
0
100 - 200 200 - 300 300 - 400 400 - 500 > 500
Interpretation:
People with demat accounts generally pay an AMC charge of around 300-400. There are seven
people among the 17 people having demat accounts whose AMC charges is within the range of
300-400 followed by the range of 200-400 and 400-500.
11. Checking of security’s balance

Table 39: showing the no. of people who check their security’s balances
People who check 13

People who do not check 4
79
Figure 44: showing the no. of people who check their security’s balances
Checking of securities balance
24%
People who check
People who do not

check
76%
Interpretation:
People who are almost regular with transactions in demat account keep a check in their securities
balances. The survey shows that 26% of people having demat account check their securities
balances.
12. Maintenance of both trading and Demat account under the same intermediary
Table 40: People who maintains their trading & demat account with the same intermediary
Yes 12
No 5
80
Figure 45: People who maintain their trading & demat account with the same intermediary
Maintenance of trading and demat

account
29%
Yes
No
71%
Interpretation:
Mostly people in keeping trading and demat account with the same intermediary as it becomes
hassle free. This survey also shows that 71% of the people like to have one intermediary for
trading in the stock market.
13. Frequency of trading in stocks

Table 41: showing the frequency of trading in stocks by the people surveyed
Frequency of trading No. of people

Daily 1
Weekly 1
Monthly 7
Quarterly 4
Yearly 2
81
Figure 46: showing the frequency of trading in stocks by the people surveyed
Frequency of trading in stocks

8
7
6
5
4
3 Frequency of trading
2 in stocks
1
0
Interpretation:
Maximum people trade in stocks monthly. There was just one person who trades in stocks daily.
Regular traders are very few. Mostly people trade monthly or quarterly.
14. Frequency of transactions in demat account

Table 42: showing the frequency of demat transactions by the people surveyed
Frequency of transactions No. of people

Rarely 4
Sometimes 11
Quiet often 1
Regularly 1
82
Figure 47: showing the frequency of demat transactions by the people surveyed
Frequency of transaction
12
10
6 Frequency of
transaction
4
0
Rarely Sometimes Quiet Often Regularly
Interpretations:
Demat transaction are sometimes done in a month by most people followed by rarely. People
who do demat transactions quiet often and regularly are very few.
15. People given power to Power of Attorney

Table 43: showing the no. of people who have given power to their POA
Yes 3
No 14
83
Figure 48: showing the no. of people who have given power to their POA
People given power to POA
18%
Yes
No
82%
Interpretation:
People generally do not like giving power to POAs. It is not mandatory even to do so. In this
survey only 3 people who were surveyed have given power to their POAs.
16. Was rematerialization better than dematerialization
Table 44: Remat vs. Demat
Yes 1
No 15
Could not decide 1
84
Figure 49: Remat vs. Demat
Remat vs. Demat
6% 6%
Yes
No
Could not decide
88%
Interpretation:
Dematerialization is better than rematerialization as the majority people think so among the
surveyed group of people. 88% of the people think that dematerialization is better. Only one
person which accounts for 6% thinks the other way, i.e., remat was better than demat.
17. Satisfaction level regarding operation of demat account
Table 45: Satisfaction level of the people who are using demat account
Unsatisfactory 1
Satisfactory 2
Good 9
Very Good 4
Excellent 1
85
Figure 50: Satisfaction level of the people who are using demat account
Satisafaction level
10
9
8
7
6
5
4
3
Satisafaction level
2
1
0
Interpretation:
People thinks the present system of demat is good. Nine people think it’s good followed by four
people who thinks it’s very good.
Thus to sum it up it can be said that out of the eighty respondents, seventeen people have demat
accounts. There are forty-five people who knows about demat, but doesn’t knows the
technicalities of demats as they do not trade. Among the forty-five people majority are students
who doesn’t have a fixed income to invest. Even interviewing few of them it was found out that
there are a few people who doesn’t want to take the risk involved in investing in the stock
market. A large number relies more on the banks than stock market for investing purposes.
Those who deal in demat accounts, they are mostly satisfied with the current scenario of
dematerialization.
86
Findings & Suggestions
Findings
 The number of deliverable shares has increased over the years in BSE as it was 40.77 in
2010-11 and it rose to 58.55 in 2014-15. But in NSE there wasn’t much of change; in
2010-11 it was 27.51 and in 2014-15 it was 27.46.
 NSDL has seen a growth rate in number of client accounts, active clients have also
increased, and also the number of companies or the issuers of NSDL has seen a growth
rate. Almost 99% of the transactions takes place in demat form. Physical shares can be
said it is present in a negligible amount.
 CDSL has also seen a growth in its number of beneficial owner accounts, securities held
by it and the no. of DPs registered under it. In short, investors are slowly and gradually
becoming aware of the entire Demat system.
 For an example, the company NALCO was taken to make an analysis on its operations as
a DP. There was a time when NALCO had many shares in physical form, even their
employees had kept shares in physical form with the company, but today they have
achieved to convert almost 99% of its shares to demat form. I had visited NALCO for
collecting data, and I had a small conversation with one of the company secretaries, Mr.
Bharat Sahu. I was informed that they still insist to those 1% shareholders to convert their
shares in demat form, they send formal notices and whatever documents they send out to
the shareholders, they specifically write in them to convert the shares in demat form.
Among the 1% shareholders, mostly are untraceable. They don’t even claim their
dividends. Unclaimed dividends if not claimed for seven years then it is transferred to
Investor protection fund of Govt. of India managed by Ministry of Corporate Affairs.
 The survey that was conducted. It included 80 people who were randomly selected. The
main objective of the survey was to see the financial literacy level in trading in stocks. It
was found out mostly people invested in banks. They are not fully aware of the system
and how it works. They do know that Demat accounts are used for trading purposes but
nothing more to it. Some people were also there who didn’t want to take the risk that is
involved in the stock market. It was also seen that people with commerce background had
little more knowledge about the trading system compared to other field of education.
Suggestions to investors:
Following are some the Do’s and Don’ts that an investor should follow:
Do’s
 SMS Alert facility – SMART. It is important to obtain alerts for any debits or credits due
to a corporate action, in the demat account so that every transactions can be looked into.
 Always mention the details like ISIN, number of securities accurately.
 Please strike out the any blank space on the slip.
87
 Submit the DIS ahead of the delivery date for all type of market transactions. DIS can be
issued with a future execution date.
 Checks the investor service record of the issuer company with your DP before deciding to
send certificates for demat.
 Before sending securities for demat, record the distinctive numbers of the securities sent.
 Before granting Power of Attorney (PoA) to anyone, to operate your demat account,
carefully examine the scope & implications of powers being granted.
 The demat account has a nomination facility and it is advisable to appoint a nominee, in
case of sole account holders.
 Check your demat account statement on receipt. In case you notice any unauthorized
debits or credits, contact your DP for clarification.
Don’ts
 Do not leave your instruction slip book with anyone else.

 Do not sign blank DIS as it is equivalent to a bearer cheque.
 Avoid over-writing, cancellations, misspellings, changing of the name and quantity of
securities.
88
Conclusion
Delivery volumes this year have seen a steady rise as equities rose sharply in 2014 on renewed
hopes of an economic recovery. Investor-participation this year was much better than last year as
average monthly delivery volumes accounted for around 45 per cent of delivery volumes as
against 42 per cent last year. In 2014-15, about 1.5 million demat accounts were opened, nearly
double the openings in the previous financial year. The rise in new accounts is the steepest in the
past four years. There was higher participation from investors.
As of February this year, the number of demat accounts with the two depositories,
NSDL and CDSL, stood at 23.3 million, up 6.8 per cent compared to 21.8 million at the end of
2013-14. The account addition in 2014-15 was nearly twice that in the previous financial year. In
2013-14, about 880,000 new demat accounts were opened, even as the market rallied 18 per cent.
Between April 2014 and March 2015, India’s benchmark indices rallied about 25 per cent, the
most in five years. It is said that the spectacular upward movement in equities in the past year
has managed to draw a lot of investors to the securities market.
However nearly four lakh demat accounts with securities worth Rs 4,755 crore have been frozen
by the top depositories till March 2015. The total number of frozen accounts as on March 31,
2015 were 3,78,902 with a total holdings being Rs 4,755 crore. Investors were required to
provide PAN card details for opening demat accounts from April 2006. The depositories have
sent letters to the concerned beneficial owners asking them to update their PAN details with their
depository participant. The depositories have also informed the investors of the same through
emails, SMS alerts, investor depository meetings, newspapers advertisements etc. These
depositories had frozen a total of 43,51,794 accounts as on December 31, 2006 due to non-
compliance with PAN requirements.
No doubt that there is an increase in the number of demat accounts opened and it is almost
double of what it was last year, but of these all of them are not active client accounts, only about
one per cent of the country's population invest in the stock market. In fact, most of the investors
are not aware of the technicalities that are associated with these accounts. Therefore, it is
important to increase the awareness about investment in stock market.
89
Reference
Books:
Arora J., 2015. Capital Market & Securities Laws. 2nd Edition. Delhi. Shree Ram Law House
Online:
www.sebi.gov.in/
https://nsdl.co.in/services/demat.php
https://nsdl.co.in/publications/financials.php
https://www.cdslindia.com/issuer/issuer-benefits.html
https://www.cdslindia.com/downloads/annual_rep/CDSL%20Annual%20Report20
13-14.pdf
http://www.yesbank.in/images/all_pdf/ListofdocumentsforDematAccountopening_
Dec2013_.pdf
https://www.hdfcsec.com/Documents-Required/201010230515158464411
http://www.hdfcbank.com/personal/products/demat/demat-account
http://articles.economictimes.indiatimes.com/2002-07-
03/news/27352795_1_custody-charges-flat-fee-structure-flat-rate
http://www.moneycontrol.com/
http://www.business-standard.com/article/markets/demat-account-openings-
double-in-fy15-115040300631_1.html
90

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A Report

Dematerialization of Securities: Towards A Paperless

Dematerialization of Securities: Towards a Paperless

Bhubaneswar Stock Exchange

9th May 2015

3. Birth of Dematerialization; A new era of Indian Capital 10

5. The Depositories Act, 1996 16

7. A Bank & A Depository 28

9. Fundamentals of Demat A/c. Operation 32

10. Benefits of Dematerialization 35

14. Findings and Suggestions 87

An exploratory research was also conducted to understand awareness of investors, their

Thus my project explains the details of dematerialization by reasoning, findings and

Table Information about table Page Number

Figure Information about figure Page Number

 Undue delay in getting allotted shares,

Indian Capital Market

Primary Market Secondary Market

Problems with the physical

Birth of Dematerialization: a new era of Indian Capital Market

This system of Dematerialization of securities works through Depository which is recognized by

 Investors should have a BO (Demat) Account with any of the depositories.

National Securities Central Depository Services

 A Depository- is an organisation which holds securities of investors in electronic form at

 Issuer Company: It is a company which makes an issue of securities. A listed company

 Rematerialisation: Rematerialisation is the process by which shares in electronic form are

 International Securities Identification Number (ISIN): “ISIN” is a unique 12 digit

Depositories Act, 1996

Depository Participants (DPs)

Investors/Shareholders (Beneficial owners)

b) There are no other grounds/reasons for continuation of the trading in TFTS.

 Delivery Instruction Slip (DIS) Issuance and Processing

A depository is an organisation which holds securities of investors in electronic form at the

Depositories also provide services related to transactions in securities. At present two

 National Securities Depository Limited (NSDL) and

A Comparative Study: NSDL vs. CDSL

Basics of NSDL & CDSL

Table 1: showing few basics of NSDL & CDSL

Date of establishment November, 1996 February, 1999

Table 2: showing the shareholding pattern of NSDL & CDSL

Figure 4: Pie-chart showing the shareholding pattern of NSDL & CDSL

Table 3: showing the financial highlights of NSDL & CDSL

Table 4: Examples of Depository Participants registered under each Depository

Qualified Depository Participants (QDPs)

Table 5: few examples of Qualified Depository Participants

QDPs of NSDL QDPs of CDSL

Table 6: showing difference between a bank and a depository

Opening of accounts A minimum balance has to be A demat account is opened by

Figure 6: showing the steps involved to open a demat account

Investor Depository Participant

Figure 7: showing the fundamental facts of demat account

Multiple demat accounts can be opened

No account opening charges

Can have maximum 3 account holders

No changes in account holder's names

Can have nil balance

The key criterions for selecting demat accounts

 Purpose/usage. In short, how frequently one is going to buy/sell and is it intraday or

Power of attorney (POA)-

a) Easy and convenient way to hold securities

Benefit to the company

Benefit to the Country

Annual maintenance fee

Rematerialization is the process of converting securities held in a electronic form in a demat