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What is the necessity of DEMAT account?

Paper share system:


Based on paper.

Share certificate is proof of ownership.


Transfer deed is required for the transfer of ownership. Registration by the company / transfer agents is required. Dependent heavily on infrastructure Stamp duty at 0.5% of market value is to be paid

Problems with the paper system: Bad deliveries More paper work Delayed transfers Loss of share certificates Forgeries and frauds

Primitive technology
Frequent litigations Unreliable

Disadvantages of paper based system


Delay in transfer of shares. Possibility of forgery of various documents leading to bad deliveries, legal disputes etc. Possibility of theft of share certificates. Prevalence of fake certificates in the market. Mutilation or loss of share certificates in transit . Physical form of holding and trading in securities was a bottleneck for broking community in capital market operations.

Solutions needed: Less paper work


No bad deliveries Speedy transfers

No forgeries
No loss of shares certificates in transit Lesser cost of transfer ownership Worry-free trading

What is DEMAT account?


Demat Account, a short form of saying Dematerialized Account is a type of banking account which dematerializes the paper based physical shares.

It can be considered as another form of a personal account where people keep shares instead of money and cheque. Demat account allows you to buy or sell and transact shares in safe, secure and convenient way without making any delay and paperwork.

Benefits of Dematerialisation
A safe and convenient way to hold securities Immediate transfer of securities

No stamp duty on transfer of securities


Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. Reduction in paper work involved in transfer of securities

Reduction in transaction cost

What is depository?
A depository is a place where the stocks of investors are held in electronic form. The Depositories Act 1996 has been enacted to regulate matters related and incidental to the operation of Depositories There is only two depositories in India, The National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). Under the arrangement, the Depository acts as registered

owner of the securities in electronic form in the books of issuing company and the client will be the beneficial

owner.

Difference between NSE and BSE


NSE Stands for National Stock Exchange. It has more than 7000 stocks from different sectors listed with it. It is fully automated electronic order processing exchange. Nifty is major index of NSE and it comprise of 50 scripts from different sectors.

BSE Stand for Bombay Stock Exchange. It is India's Oldest Stock Exchange with listing of over 4000 scripts with it. This not fully automated yet but progress towards full automation is underway. SENSEX is major index of BSE and it comprise of 30 scripts from different sectors.

What is depository participant?


The Depositary Participants are the agents governed of Depositories through which one can operate the Demat account. Depository participants are mainly banks and brokers. There are over a 250 DPs in India

How depositories function


Through service providers: DPs, Issuing companies and their Registrars and Share Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges. Known as Business partners.

Bank and Depository- A Comparison


BANK DEPOSITORY

Holds Funds in accounts


Transfer funds between accounts Transfers without handling money Safekeeping of money Interest is paid in SB, RD, FD accounts by bank.

Holds securities in account Transfer securities between account Transfer without handling securities Safekeeping of securities No interest is paid. AMC needs to paid by account holder

BANK Funds
1. Any one of the holders can sign instruction. 2 Minimum Balance to be maintained 3 Entitled for interest

NSDL Securities
1 All joint holders to sign instructions 2 No minimum balance required 3 Interest only by participat -ing in stock lending 4 Does not move balance in account with out account holders authorisation. 5 Signature and photograph

4 Use balance in the account. 5 Nomination

How to open a DEMAT account?


Opening a Demat account is as simple as a bank account opening. You can open a Demat account with any registered depository participant (DP). The first step of opening an account is to fill up an account opening form. Standard Agreements are to be signed by the Client and the DP, which details the rights and obligations of both parties. The charges for account opening, annual account maintenance fees and transaction charges vary between DPs. The client will be provided with an account number called BOID(Beneficiary Owner Identification Number).

Who can open a DEMAT account?


Any individual or corporate can open a Demat account. It is possible to open more than one Demat account in identical names. A Demat account can be opened in more than one names but can be operated only for dematerialization of shares held in the same combination. Once a Demat account has been started , it is not possible to change the account name. In such case a new Demat account needs to be opened in the changed name, securities are to be transferred from the old account to the new account and the old account needs to be closed.

Documents required
The documents required for opening a Demat account is PAN Card, Voter's ID Card, Applicant's Passport , Ration Card, Driver's License, Photo Credit Card , Employees ID Card, Bank Attestation, IT Returns , Electricity/ Landline Phone Bills, a signed passport size photograph etc. All the documents listed above are not mandatory.

PAN card is a must for opening a Demat account.


As of January 2007, it became mandatory that any person holding a Demat account should posses a Permanent Account Number (PAN).

Dematerialisation process
Submit duly filled in DRF and Physical certificate to DP
DP sends electronic request to the R&T agent through depository DP will simultaneously surrender the DRF and shares to the Company / Registrars and Transfer Agents

The R&T agent will confirm the demat to depository which will be passed on to the DP
After confirmation from the depository, DP will credit the investors account with no of shares dematerialized

Features of Dematerialisation
Holdings in only those securities that are admitted for dematerialisation by NSDL can be dematerialised.
Only those holdings that are registered in the name of the account holder can be dematerialised. Names of the holders of the securities should match with the names given for the demat account.

If the same set of joint holders held securities in different sequence of names, these joint holders by using ' Transposition cum Demat facility' can dematerialise the securities in the same account even though share certificates are in different sequence of names.

Eg., If there are two share certificates one in the name of X first and Y second and another in the name of Y first and X second, then these shares can be dematerialised in the depository account which is in any name combination of X and Y i.e., either X first and Y second or Y first and X second. Separate accounts need not be opened to demat each share certificate. If shares are in the name combinations of X and Y, it cannot be dematerialised into the account of either X or Y alone.

Features of Dematerialisation
Check the demat performance of the companies whose shares are to be given for dematerialisation. Demat requests received from client (registered owner) with name not matching exactly with the name appearing on the certificates merely on account of initials not being spelt out fully or put after or prior to the surname, can be processed, provided the signature of the client on the Dematerialisation Request Form (DRF) tallies with the specimen signature available with the Issuers or its R & T agent. A client may, in the normal course, receive demat confirmation in about 30 days from the date of submission of demat request to the DP.

Precautions
Holdings in those securities that have not yet been admitted for dematerialisation by NSDL cannot be dematerialised. List of securities admitted for dematerialisation should be verified before defacing the securities. The combination of names of holders as printed on the physical certificate should be identical with the names initiating the dematerialisation request. Separate dematerialisation requests will have to be filled for locked-in and free holdings.

Delivery of securities
Transfer of securities from one account to another may be done for any of the following purposes
Off-market Market

A beneficiary account can be debited if the beneficial owner has given 'Delivery Instruction i.e. TIFD

Receipt of securities
A purchaser of securities can give one-time standing instruction to his DP for receiving securities in his account. Alternatively, a Beneficial Owner may choose to issue separate receipt instruction to his DP every time he makes any purchase of securities

In NSDL ( on 30.04.2013) Number of investors accounts :1,27,28,104 DP service centres : 14,668 Demat custody value : Rs.78,34,055 Crores (US$1,445 billions) DPs ( NSDL) :282

Demat Shares Debt/Bonds CP


NSDL

Custody 11,047 9,035 1,386

In CDSL ( As on 30.04.2013) Investors accounts Depository Participants DP Locations : : : 83,55,332 579 12,455

Services provided by DPs: 1.Opening of demat accounts 2.Dematerialization of Physical share certificates 3.Accepting Transfer instructions (market/ off market) 4.Change of address/ nomination/bank details etc. 5.Pledge / hypothecation of shares. 6.Rematerialization of electronic shares in physical shares.

Banks can extend loan / OD only against demat shares, not against physical share certificates.