Overview of Demat Account :

Demat account allows you to buy, sell and transact shares without the endless
paperwork and delays. It is also safe, secure and convenient.
In India, a demat account, the abbreviation for dematerialized account, is a typeof
banking account which dematerializes paper-based physical stock shares.
Thedematerialized account is used to avoid holding physical shares: the shares
arebought and sold through a stock broker.
This account is popular in India. The Securities and Exchange Board of
India(SEBI) mandates a demat account for share trading above 500 shares. As of
April2006, it became mandatory that any person holding a demat account
shouldpossess a Permanent Account Number (PAN), and the deadline for
submission ofPAN details to the depository lapsed on January 2007.

Is a demat account a must?

Now a day, practically all trades have to be settled in dematerialized
form.Although the market regulator, the Securities and Exchange Board of India
(SEBI),has allowed trades of up to 500 shares to be settled in physical form,
nobody wantsphysical shares any more. So a demat account is a must for trading
and investing.

Why demat?
The demat account reduces brokerage charges, makes pledging/hypothecation
ofshares 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.
It also helps you avoid bad deliveries caused by signature mismatch, postal
delaysand loss of certificates in transit. Further, it eliminates risks associated
withforgery, counterfeiting and loss due to fire, theft or mutilation. Demat
accountholders can also avoid stamp duty (as against 0.5 per cent payable on
physicalshares), avoid filling up of transfer deeds, and obtain quick receipt of such
benefitsas stock splits and bonuses.

What is dematerialization?
Dematerialization is the process by which physical certificates of an investor
areconverted to an equivalent number of securities in electronic form and
creditedinto the investor’s account with his/her DP.

Why DEMAT a/c likes a BANK a/c?

Just as you have to open an a/c with a bank if you want to save your money,
makecheque payments etc, you need to open a demat a/c if you want to buy or
sellstocks. So it just like a bank a/c where actual money replaced by shares.
Example :let’s say your portfolio has 100 of SATYAM, 200 of IBM and 120
ofTCS shares. All these will show in you’re a/c. so you don’t have to possess
anyphysical certificate that you own these shares. They all are held electronically
inyou’re a/c.

Steps involved in opening a demat account :

First an investor has to approach a DP and fill up an account opening form. The
account opening form must be supported by copies of any one of the
approveddocuments to serve as proof of identity (POI) and proof of address (POA)
asspecified by SEBI. Besides, production of PAN card in original at the time
ofopening of account has been made mandatory effective from April 01, 2006.All
applicants should carry original documents for verification by an authorizedofficial
of the depository participant, under his signature.
Further, the investor has to sign an agreement with DP in a depository
prescribedstandard format, which details rights and duties of investor and DP. DP
shouldprovide the investor with a copy of the agreement and schedule of charges
for theirfuture reference. The DP will open the account in the system and give an
accountnumber, which is also called BO ID (Beneficiary Owner Identification
number).
The DP may revise the charges by giving 30 days notice in advance.SEBI
hasrationalized the cost structure for dematerialization by removing account
openingcharges, transaction charges for credit of securities, and custody charges
videcircular dated January 28, 2005.
Further, SEBI has vide circular dated November 09, 2005 advised that with
effectfrom January 09, 2006, no charges shall be levied by a depository on DP
andconsequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all
thesecurities lying in his account to another branch of the same DP or to another
DPof the same depository or another depository, provided the BO Account/s at

transferee DP and at transferor DP are one and the same, i.e. identical in all
respects.
In case the BO Account at transferor DP is a joint account, the BO Account at
transferee DP should also be a joint account in the same sequence of ownership.
Rights:
1.You can open more than one depository account in the same name with
single DP/ multiple DPs.
2.No minimum balance is required to be maintained in a depository account.
3.You can give a onetime standing instruction to your DP to receive all the
credits coming to your depository account automatically.

DEMAT Benefits?

 A safe and convenient way to hold securities.

 immediate transfer of securities.

 No stamp duty on transfer of securities(0.5 % on physical shares).

 Elimination of risks associated with physical certificates such as bad

delivery, fake securities , delays , theft etc.

 Reduction in paper work.

 Reduction in transaction cost.

 No odd lot problem , even one share can be sold

 Nomination facility.
 Holding investment in equity and debt instruments in a single account.etc.

DEMAT Conversion:-
1.Surrender the certificates of physical shares for dematerialization to your
depository participants.
2.Depository participant intimates depository of the request through the
system.
3.Depository participant submit the certificates to the registrar to the issuer
company.
4.Registrar confirms the dematerialization request from depository.
5.After dematerializing the certificates, registrar updates accounts and informs
depository of the completion of dematerialization.
6.Depository updates its accounts and informs the depository participant.
7.Depository participant updates demat a/c of the investor.

What is a Depository?
A depository is an organisation which holds securities of investors in
electronicform at the request of the investors through a registered Depository
Participant. Italso provides services related to transactions in securities.
SEBI registered depository’s :-

NSDL :-National securities depository limited

CDSL :- Central depository services limited
Minimum net worth required for a depository is 100 crores

NSDL:
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
deliveryand delayed transfer of title till recently. The enactment of Depositories
Act inAugust 1996 paved the way forestablishment of NSDL, the first depository
inIndia. This depositorypr omoted by institutions of national stature responsible
foreconomic development of the country has since established a
nationalinfrastructure of international standard that handles most of the trading
andsettlement in dematerialized form in Indian capital market. Using innovative
andflexible technology systems, NSDL works to support the investors and brokers
inthe capital market of the country. NSDL aims at ensuring the safety and
soundnessof Indian marketplaces by developing settlement solutions that increase
efficiency,minimize risk and reduce costs. At NSDL, we play a quiet but central
role indeveloping products and services that will continue to nurture the growing
needs ofthe financial services industry.
In the depository system, securities are held in depository accounts, which is
moreor less similar to holding funds in bank accounts. Transfer of ownership
ofsecurities is done through simple account transfers. This method does away
withall the risks and hassles normally associated with paperwork. Consequently,
thecost of transacting in a depository environment is considerably lower as
comparedto transacting in certificates.

DEPOSITORY PARTICIPANTS:

A Depository Participant (DP) is described as an agent of the depository. They

arethe intermediaries between the depository and the investors. The
relationshipbetween the DPs and the depository is governed by an agreement made
betweenthe two under the Depositories Act. In a strictly legal sense, a DP is an
entity that isregistered as such with SEBI under the provisions of the SEBI Act. As
per theprovisions of this Act, a DP can offer depository-related services only after
obtaining a certificate of registration from SEBI.

Benefits of Depository System:

In the depository system, the ownership and transfer of securities takes place
by means of electronic book entries. At the outset, this syste
Benefits of Depository System:
In the depository system, the ownership and transfer of securities takes place
by means of electronic book entries. At the outset, this system rids the
capitalmarket of the dangers related to handling of paper. NSDL provides
numerousdirect and indirect benefits, like:

· Elimination of bad deliveries

In the depository environment, once holdings of an investor are dematerialized,
thequestion of bad delivery does not arise i.e. they cannot be held "under
objection".In the physical environment, buyer was required to take the risk of
transfer andface uncertainty of the quality of assets purchased. In a depository
environmentgood money certainly begets good quality of assets.

· Elimination of all risks associated with physical certificates

Dealing in physical securities have associated security risks of theft of
stocks,mutilation of certificates, loss of certificates during movements through and
fromthe registrars, thus exposing the investor to the cost of obtaining
duplicatecertificates and advertisements, etc. This problem does not arise in the
depository environment.

· No stamp duty
For transfer of any kind of securities in the depository. This waiver extends to
equity shares, debt instruments and units of mutual funds.

· Immediate transfer and registration of Securities

In the depository environment, once the securities are credited to the investors
account on pay out, he becomes the legal owner of the securities.
There is no further need to send it to the company's registrar for registration.
Having purchased securities in the physical environment, the investor has to
send it to the company's registrar so that the change of ownership can be
registered.This process usually takes around three to four months and is rarely
completedwithin the statutory framework of two months thus exposing the investor
toopportunity cost of delay in transfer and to risk of loss in transit. To overcome
this,
the normally accepted practice is to hold the securities in street names i.e. not to
register the change of ownership.
However, if the investors miss a book closure the securities are not good for
delivery and the investor would also stand to loose his corporate
entitlements.
·  Faster settlement cycle
The exclusive demat segments follow rolling settlement cycle of T+2 i.e.
thesettlement of trades will be on the 2nd working day from the trade day. This
willenable faster turnover of stock and more liquidity with the investor.
·  Faster disbursement of non-cash corporate
benefits like rights, bonus, etc.
NSDL provides for direct credit of non-cash corporate entitlements to aninvestors
account, thereby ensuring faster disbursement and avoiding riskof loss of
certificates in transit.
·  Reduction in brokerage by many brokers for
trading in dematerialized securities
Brokers provide this benefit to investors as dealing in dematerialized
securitiesreduces their back office cost of handling paper and also eliminates the
risk ofbeing the introducing broker.
·  Reduction in handling of huge volumes of paper
·  Periodic status reports to investors on their holdings and
transactions, leading to better controls.
45
·  Elimination of problems related to change of address of
investor, transmission, etc
In case of change of address or transmission of demat shares, investors are
savedfrom undergoing the entire change procedure with each company or
registrar.Investors have to only inform their DP with all relevant documents and
therequired changes are effected in the database of all the companies, where
theinvestor is a registered holder of securities.
· Elimination of problems related to selling
securities on behalf of a minor
A natural guardian is not required to take court approval for selling demat
securities on behalf of a minor.
· Ease in portfolio monitoring
Since statement of account gives a consolidated position of investments
in all instrument