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In partial fulfillment of the requirement for the award of degree of MASTER OF BUSINESS ADMINISTRATION (MBA) (2011-2013)


Submitted by: TARNJIT KAUR MBA 3RD SEM 1175433



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PARTICULARS Preface Declaration Acknowledgement Objectives of the Study Introduction to Ludhiana Stock Exchange Board of Directors Vision and Mission of Stock Exchange Strengths of LSE group Status of Subsidiary Investor Related Services Educational Initiatives of Exchange Depository Introduction Legal Framework Depositories in India - NSDL CDSL Facilities offered by NSDL & CDSL Depository System boon to capital market Depositories Act 1996 Important Functions in Depository System Dematerialisation Rematerialization Comparison b/w Depository & Bank

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24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

Benefits of Depository Service IPO Trading & Settlement BO Account Charges For Opening a BO Account Account Opening Bank Account Details Check List for Account Opening Charges for Closing Account ISIN Pledge & Hypothecation Rights & Obligation Advantages of Depository System Disadvantages of Depository System Research & Methodology Research Discussion Findings Conclusion Bibliography

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In order to make the student competent, all students are required to make a real time project work. This exposure to real life situation given an insight to the students about what problem he/she can expect to face during this career. Studying and merely passing exams is not worth, the education, knowledge and infect experience is incomplete without being exposed to what is happening in real. With the introduction of compulsory trading by SEBI, there has been mushroom growth of depository participants with so many DPs to choose from, client still had to face so many problems while carrying on their transactions .LSE also entered the DP business with the aim of providing more efficient services. Our study aims of finding out how far it has been successful in keeping its promise of efficient services. the main intention of this report is to compile the subject matter in such a way that anybody who has no prior knowledge of elements of LSE and DP, can understand properly without any difficulty. Actually this report is result of an assignment to improve us and gain confidence. We have to done our best to make it genuine study but as well all know maxim TO ERR IS HUMAN so there is a chance for some mistake.


This project entitled empirical study on DEPOSITORY is submitted in partial fulfillment of requirement for the award of degree of Master of Business Administration of Punjab Technical University .This research work is done by Tarnjit Kaur .This research work has been done for MBA and none of this research work has been submitted for any other degree . This assistance and helping the executive of the project has been fully acknowledged.



It is difficult to acknowledge precious a debt as that of learning as it is the only debt that is difficult to repay except through gratitude. First and foremost I wish to express my profound gratitude to the almighty, the merciful & compassionate with those grace & blessings. I have been able to complete this work. It is my profound privilege to express my sincere thanks to Miss Pooja M. Kohli(Executive director) of LSE, for giving me an opportunity to work on the project and giving me full support in completing this project. I am very thankful to my guide Mr. Sadhu Ram (guide and coordinator) for his full support in completing this project work. Last but not least, I would like to thank my parents & my friends for their full cooperation & continuous support during the course of this assignment.


To study the securities in market To know the difference between NSDL and CDSL To know the overall functioning of depository To examine the satisfaction level of investors by the services provided by NSDL and CDSL To know about the benefits yielded to brokers To understand the functioning of LSE To know the brokers perception about NSDL and CDSL To know about dematerialization.

Introduction to Ludhiana Stock Exchange

The Ludhiana Stock Exchange Limited (LSE was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. Munjal of Hero Group, leading industrial luminaries, to fulfill a vital need of having a Stock Exchange in the region of Punjab Himachal Pradesh Jammu & Kashmir and Union territory of Chandigarh. Since its inception, the stock exchange has grown phenomenally. The stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the state of Punjab and other parts of the company. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the state under its jurisdiction. Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other stock exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by national Stock exchange and Bombay stock Exchange, entering into the field of Commodities trading or imparting education to the Public at large by way of starting Certificate Programmed in Capital Market.


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Name Of The Director Prof. Padam Parkash Kansal Sh. Joginder Kumar Sh. Vikas Batra Sh. Satish Nagpal Sh. Ashok Kumar Sh. Rajinder Mohan Singla Sh. Jaspal Singh Sh. Sanjay Anand Sh. Sunil Gupta Sh. V.P Gaur Sh. Ashwani Kumar Dr. Raj Singh ROC

Category Chairman Vice Chairman Share Holder Director Share Holder Director Share Holder Director Share Holder Director Trading Member Director Trading Member Director Trading Member Director Public Interest Director Public Interest Director Public Interest Director

The Vision and Mission of Stock Exchange is:

Reaching small investors by providing services relating to Capital market including Trading Depository operations etc. and creating Mass Awareness by way of education and training in the field of Capital market.

To create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market. Further, the exchange has 295 members out of which 171 are registered with national Stock exchange as Sub- broker and 124 with Bombay Stock exchange as sub- brokers through our subsidiary. Ludhiana Stock Exchange has strong governance and administration, which encompasses a right balance of industry experts with highest level educational background, practicing professional and independent experts in various filed of Financial Sector. The administration is presently headed by Sr. General Manager-cum-company Secretary (holding additional charge of Executive Director (Offtg.) and team of persons having in depth knowledge of secretarial, legal and Educational Training. The Governing Board of our Exchange comprises of twelve members, out of which three are Public Interest Directors, who are eminent persons in the fields of Finance and Accounts, Education, Law, Capital Markets and other related fields, Six are Shareholder Directors, and three are Broker Member Director and the Exchange has four Statutory Committees namely Disciplinary Committee, Arbitration Committee, Defaults Committee and Investor Services Committee. In addition, it has advisory and standing committees to assist the administration. LSE has a Code of Conduct in place that governs the elected Board Members and the Senior Management Team. The same is monitored through periodic disclosure procedures. The Exchange has an Ethics Committee, which looks into any issue of conflict of interest and has in place general code of conduct for the Senior Officials.

Strengths of LSE Group

1. LSE brand is popular among masses. The brand image of LSE can be capitalized.


2. We have requisite infrastructure for the Capital Market activities which includes a multistoreyed, centrally air conditioned building situated in the financial hub of the city i.e. Feroze Gandhi Market. 3. We have well experienced staff handling operations of Stock Exchange. 4. We have competent Board and professional management. 5. We have much needed networking of sub brokers in the entire region, who are having rich experience in Stock Market operations for the last 31 years. 6. We have more than 46,000 clients spread across Punjab, Himachal Pardesh, Jammu & Kashmir and adjoining areas of Haryana and Rajasthan. 7. The turnover of our subsidiary is the highest amongst all subsidiaries of Regional Stock Exchanges in India.

Infrastructure and Assets Base at Ludhiana Stock Exchange

The Exchange building is situated at Feroze Gandhi Market, Ferozepur Road, Ludhiana. It is a six storied building, which is centrally air-conditioned. The building has 262 rooms, which are located on various floors ranging from second to fifth. The first floor of the building houses the administrative office and rooms from second to fifth floors have been leased out to brokers. The first floor also has canteen facility. Investor Service Centre is also located at first floor which houses a well-equipped library and view-terminals to provide live rates of NSE and BSE to investors. Investors are also provided with Cable TV for the purpose of viewing the latest happenings in the Capital Market and around. Basement the building has air-conditioning plant and Generators to provide air-conditioned environment and twenty-four hours power back up. The Exchange has also an additional plot of land measuring 2333 sq. yards in the prime location of city, to enhance its infrastructure and source of income.

Status of Subsidiary i.e. Ludhiana Securities Ltd.

Due to Nationwide reach of bigger Stock Exchanges, the trading volumes at Ludhiana Stock Exchange declined and ultimately, the trading stopped in February, 2002, but the Stock Exchange converted the threat of bigger Exchanges into opportunities and acquired the corporate

membership of these exchanges through its subsidiary company i.e. LSE Securities Limited. We have now been providing Trading Platforms of Bigger Stock Exchanges to the Investors of the region. The vast network of Brokers of the Exchange is servicing millions of Investors. The subsidiary company is also providing depository services in the State of Punjab and Himachal Pradesh. The turnover of subsidiary is highest amongst all the subsidiaries of Regional Stock Exchanges. The growth of subsidiary is swift and it has been providing a range of services to the public at large such as Trading, Depository, and IPO bidding collection Centre. The Company in its continuous endeavor to provide qualitative services to its valued clients, has started e-broking trading services for its clients, thereby increasing the geographical reach of the company.


At present, Ludhiana Stock Exchange has 324 listed companies, out of which 211 are regional and 113 are Non-regional. The total listed capital of aforesaid companies is Rs. 3063.56 Crores appx. The market capitalization of the said companies is more than Rs. 1890.53 crores. The Stock Exchange is covering the vast investor base through the listing of above said companies, which are situated in the region comprising of Punjab, Himachal Pradesh, Jammu & Kashmir, Chandigarh. Ludhiana Stock Exchange has facilitated the capital generation for agro based industries as Punjab is a agricultural led economy. It will continue to do so, once it gets approval for a tie up with bigger Exchanges for commencing trading operations.

Investor Related Services


The Exchange has been providing a variety of services for the benefit of investing public. The services include Investor Service Centres, Investor Protection fund and Investor Educational Seminars. (I).INVESTOR SERVICE CENTRES:The Exchange has set-up Investor Service Centre at LSE Building for providing information relating to Capital Market to the general public. The Centres subscribe to leading economic, financial dailies and periodicals. They also store the Annual Reports of the companies listed at the Stock Exchange. The Investor Service Centres are also equipped with a Terminal for providing live rates of trading at NSE and BSE. A large number of the investors visit the centre to utilize the services being provided by the Exchange. (II).INVESTOR AWARENESS SEMINARS:The Exchange has been organizing Investor Awareness Seminars for the benefit of Investors of the region comprising State of Punjab, Himachal Pradesh, Jammu & Kashmir, Chandigarh and adjoining areas of Haryana and Rajasthan. This massive exercise of organizing Investor Awareness Seminars has been launched as a part of Securities Market Awareness Campaign launched by SEBI in January, 2003. The Exchange apprises the investors about Dos and Donts to be observed while dealing in Securities Market. During 2011-2012, till date, Exchange has organized more than 83 workshops in the region mentioned above. (III).WEBSITE OF THE The Exchange has its own website with the domain name The website provides valuable information about the latest market commentary, research reports about companies, daily status of International markets, a separate module for Internet trading, information about listed companies and brokers and sub-brokers of the Exchange and its subsidiary. The website also contains many useful links on portfolio management, investor education, frequently asked questions about various topics relating to Primary and Secondary Market, information about Mutual Funds, Financials of the Company including Quarterly Results, Share Prices, Profit and Loss Accounts, Balance Sheet and Many More. The website also contains daily Technical Charts of various scripts being traded in BSE and NSE.

Educational Initiatives of Exchange


LSE has carved out its unique position among the Stock Exchanges of the country for the Knowledge Management. It has set up an Education and Training Cell and the same has emerged as a leading facility in various Financial Services in India. The Exchange has been conducting a unique certification programme in Capital Market in association with Centre for Industry Institute Partnership Programme Panjab University, Chandigarh for the last three year. This programme has widened the horizons of participants vis--vis Capital Market Operations as practical skill based knowledge is provided by Stock Brokers, Stock Exchange Officials, Professors of Finance and Business Management and above all Professionals working in different areas of Capital Market. We have completed series of batches of this programme and we now want to scale up this programme and are planning to launch various other programmes on areas relating to Securities Market. We have edge over others as far as Education and Training in Financial Services is concerned due to following factors: a. Directly connected with the Industry as Regional Stock Exchange. b. Connected with large base of Investors as they use the Stock Exchange as a Trading Platform for their liquidity needs c. Presence in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Chandigarh through our branches Network and the area being under the jurisdiction of our Exchange. d. Already running Certification programmes in Capital Market successfully. e. Continuously holding Investor Awareness Programmes for Investors & Investor Groups through association with Brokers, Sub-brokers, Colleges, Universities and Consumer Groups.




Since the beginning of liberalisation process in 1991, the size of Indian capital market expanded manifold. The traditional system of settlement through physical transfer of securities failed to cope with the requirements of growing of the market. Physical settlement mechanisms gave rise to inefficiencies and risks of bad deliveries. Delays in transfer and registration, fake certificates and forgeries. Minimisation of settlement risks and shortening of settlement cycles are the basic requirements for greater depth and expansion of markets by upgrading the existing trading system into a modern internationally competitive one .Severe infrastructural bottlenecks delayed upgradation of Indian clearing and settlement systems. These bottlenecks became more pronounced with every increase in the number of investors and volume of trading in securities. Inability of clearing and settlement infrastructure to efficiently manage the flow of paper work made it difficult for the exchanges to shorten settlement cycles and move to rolling settlement. The Depositories Act has paved the way for instituting an infrastructure for eliminating various risks associated with capital market transactions and increasing the efficiency of clearance and settlement systems. It allows for dematerialisation and re-materialisation of securities in depositories through electronic book entry thus reducing settlement risks and removing some of the infrastructural bottlenecks.

What is a Depository?

A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) 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.



The Depositories Act 1956 provides the regulation of depositories in securities. SEBI formulated the Depositories and participants Regulation Act, 1996 to oversee the matter regarding admission and working of Depositories and its participant. The Depositories Act passed by parliament received the President's assents on August 10, 1996. The Act enables the setting up of multiple depositories in the country. Only a company registered under the companies Act (1956) and sponsored by the specified categories of institution can setup depository in India. The Depository offers services relating to holding of securities and facility processing of transaction in such securities in book entry form. The transaction handled by depositories includes settlement of market trades, settlement of off-market trades, securities lending and borrowing, pledge & hypothecations.


Any of the following may be a Depository:

A public financial institution as defined in section 4A of the Companies Act, 1956. A bank included in the second schedule to the RBI Act, 1934. A foreign bank operating in India with the approval of the RBI. A Recognized Stock Exchange. An institution engaged in providing financial services where not less than 75% of the equity is held jointly or severally by the institution. A custodian of the securities approved by Government of India.

Depositories in India
There are 2 depositories in India


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

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. This depository 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. 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. At NSDL, we play 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.



A Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a demat account through any DP for dematerialisation of his holdings and transferring securities. The balances in the investors account recorded and maintained with CDSL can be obtained through the DP. The DP is required to provide the investor, at regular intervals, a statement of account which gives the details of the securities holdings and transactions. The depository system has effectively eliminated paper-based certificates which were prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous transfer of securities. CDSL was promoted by BSE Ltd jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India.

CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. Some of the important milestones of CDSL system are:

CDSL received the certificate of commencement of business from SEBI in February, 1999. Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on July 15, 1999. Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing house of BSE, started in July 1999. All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc. have established connectivity with CDSL.
As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities, bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system.

Facilities offered by NSDL and CDSL


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

Depository System is a boon to Capital Market

Depository: Depositories gave a new dimension for conducting transactions in the capital market primary as well as secondary in a more efficient and effective manner and in a paperless form. In the depository system, the ownership and transfer of securities takes place by means of electronic book entries. Advantages of Dematerialization of Securities:

1. Elimination of bad deliveries. 2. Elimination of all risks associated with physical certificates. 3. Immediate transfer and registration of securities. 4. Faster disbursement of non-cash corporate benefits like rights, bonus, etc. 5. Reduction in brokerage for trading in dematerialized securities. 6. Reduction in handling of huge volumes of paper and periodic status reports to investors. 7. Elimination of problems related to change of address of investor transmission etc.


The Depositories Act vests SEBI with the powers of registration of depositories and participants, and to approve or amend the bye-laws of a depository. The National Securities Depository Limited (NSDL) was set up after the notification of SEBI Regulations, 1996. The NSDL was sponsored by the IDBI, the UTI and NSE. It obtained certificate of commencement in October 1996. Initially 13 companies joined NSDL. Starting with just five depository participants in


Mumbai. By August 1997 there were 34 fully operational depository participants (DPs) offering services at a total of 101 different locations covering 46 cities in the country. The DPs have also been set up in some of the cities in foreign Dubai and London. The depositories Related Laws (Amendment) Ordinance, 1997 was promulgated to remove some lacunae in the Depositories Act. The amendment enables units of mutual funds and the UTI, securities of statutory corporations and public sector bonds, to be dealt through depositories. The Depositories regulations provide for selection of various categories of market participants s depository participants. The eligible categories include: public financial institutions, scheduled commercial banks, State Financial of corporations (SFCs). RBI approved foreign banks in India, certified custodians of securities, clearing corporations of Stock exchanges, registered stock brokers and Non-banking financial Corporations (NBFCs). The depository regulations stipulate that agreement should be entered into between the depository and every participant, issuer company and the registrar as per the provisions of the Act and the regulations. Exactly one year after the commencement of operations by the National securities Depository ltd. (NSDL). i.e., by November 7, 1997, the countrys first depository had 131 companies signed up with it of which 105 companies were available for dematerialization and of 100 were available for trading. The number of depository participants (DPs) had grown up from five to 37 who were fully operational and offer depository services at more than 109 different locations. Of these, 20 participants are offering services to retail clients also. The total market capitalisation of companies signed up for dematerialization crossed Rs. 1,85,000 crore in the very first year with about 10.000 crore shares having been dematerialized. The depository had set a target of 14,000 crore shares till December-end 1997.

Within the first year of operations, the NSDL captured about 38 per cent of the market capitalization in the country. Thus, it seems to have done better than some other overseas depositories. For example, within seven years of its existence till 1997, the Japanese depository had only 17 per cent of total shares held in dematerialized form, Honkong depository held about 54 per cent of shares in immobilized form after 12 years of operation. However, shares was made mandatory through a SEBI diktat that institutional investors can settle in dematerialized shares


only after January 15, 1998 in certain scrips. Mumbai Stock Exchange (BSE) also started trading in dematerialized shares in December 1997.

Benefits of having a Depository are as follows:

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


1. Dematerialisation 2. Re-materialisation 3. Initial Public Offers


4. Trading and Settlement

Dematerialisation is the process of converting the physical form of shares into electronic form. Prior to dematerialisation the Indian stock markets have faced several problems like delay in the transfer of certificates, forgery of certificates etc. Dematerialisation helps to overcome these problems as well as reduces the transaction time as compared to the physical segment. The article discusses the procedures, advantages and problems of dematerialisation. The Indian Stock markets have seen a major change with the introduction of depository system and scrip less trading mechanism. There were various problems like inordinate delays in the transfer of share certificates, delay in receipt of securities and inadequate infrastructure in


banking and postal segments to handle a large volume of application and storage of share certificates .To overcome these problems physical dealing in securities should be eliminated . The Indian stock market introduced the system of dematerialisation recognizing the need for scrip less trading. According to the Depositories Act, 1996, an investor has the option to hold shares either in physical or electronic form .The process of converting the physical form of shares into electronic form is called dematerialisation or in short demats. The converted electronic data is stored with the depository from where they can be traded. It is similar to a bank where an investor opens an account with any of the depository participants. Depository participant is a representative of the depository .The DP maintains the investors securities account balances and intimates him about the status of holdings.


Surrender certificates for dematerialisation to your DP. DP intimates to the Depository regarding the request through the system. DP submits the certificates to the registrar of the Issuer Company. Registrar confirms the dematerialisation request from depository. After dematerialising the certificates, Registrar updates accounts and informs depository regarding completion of dematerialisation. Depository updates its accounts and informs the DP. DP updates the demat account of the investor.

Physical Securities to Electronic Form



Re-materialisation is a process by which a beneficiary can convert the electronic balances in his account into physical share certificate. On remat the investor will get new certificates with new folio and certificate number.

This entire procedure normally takes 30 days. No trading is possible on the securities sent for remat.


Make a request for re-materialisation. Depository participant intimates depository regarding the request through the system. Depository confirms re-materialisation request to the registrar. Registrar updates accounts and prints certificates. Depository updates accounts and downloads details to depository participant. Registrar dispatches certificates to investor.

Electronic Form to Physical Securities


Shares and bonds are being issued by companies for quite some time. Ten years back, all these were issued in the form of physical certificates that the investor had to keep safe and then forward to the buyer once sold. This process was highly time consuming and gave rise to issues like fake securities and bad deliveries. All these reasons and the improvement in technology gave rise to depositories and the electronic mode of holding securities.


A depository resembles a bank; however in case of a depository the deposits are securities, such as shares, debentures, bonds and government securities, in electronic form. A depository functions as a bank- both are common houses that hold assets of the participating members and provide services to clients.

Comparison of a Depository with a Bank

Depositories Hold securities in an account Transfer securities between accounts on the instruction of the account holder Assist in transfer of ownership without having to handle securities Banks Hold funds in an account Transfers funds between accounts on the instruction of the account holder

Assist in transfers without having to handle money

Facilitates safekeeping of shares

Facilitates safekeeping of money


The benefits are enumerated below: 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 paperwork involved in transfer of securities. Reduction in transaction cost. No odd lot problem, even one share can be traded. Nomination facility.

Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately. Transmission of securities is done by DP eliminating correspondence with companies.

Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc. Holding investments in equity and debt instruments in a single account.


An initial public stock offering (IPO) referred to simply as an "offering" or "flotation," is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will


do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue(common or preferred), the best offering price and the time to bring it to market. Also referred to as a public offering". IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values.


Procedure for selling dematerialization securities:-


The procedure for buying and selling dematerialised securities is similar to the procedure for buying and selling physical securities. The difference lies in the process of delivery (in case of sale) and receipt (in case of purchase) of securities. In case of purchase: The broker will receive the securities in his account on the payout day. The broker will give instruction to its DP to debit his account and credit BO's account BO will give Receipt Instruction to DP for receiving credit by filling appropriate form. However BO can give standing instruction for credit to his account that will obviate the need of giving Receipt Instruction every time. In case of sale:BO will give delivery instruction through Delivery Instruction Slip (DIS) to DP to debit his account and credit the brokers account. Such instruction should reach the DPs office at least 24 hours before the pay-in, failing which; DP will accept the instruction only at the BOs risk.

BENEFICIAL OWNER (BO) ACCOUNT (To Trade in Capital Market)


As per the available statistics at BSE and NSE, 99.9% transactions take place in dematerialised mode only. Therefore, in view of the convenience of trading in dematerialised mode, it is advisable to have a beneficial owner (BO) account for trading at the exchanges. However to facilitate trading by small investors (Maximum 500 shares, irrespective of their value) in physical mode the stock exchanges provide an additional trading window, which gives one time facility for small investors to sell physical shares which are in compulsory demat list. The buyer of these shares has to demat such shares before further selling.



SEBI has rationalised the cost structure for dematerialisation by removing account opening charges, transaction charges (for credit or buy transactions of securities), custody charges and account closing charges. Custody charges are now paid by the issuer companies. Broadly, investors are required to pay the charges towards:-

Dematerialisation and Rematerialisation of their securities Annual account maintenance charges Transactions fees (only for sell transactions)

The DP may revise the charges by giving 30 days notice in advance.

Further, SEBI has also advised the DPs to submit to their Depository their tariff/charge structure every year latest by 30th April and changes made therein, along with the date of effect to enable the investors to have a comparative analysis of the tariff/charge structure of various DPs. The information received by the depositories is put up on their websites.


First an investor has to approach a DP and fill up an account opening form. The account opening form must be supported by copies of any one of the approved documents which serve as proof of


identity (POI) and proof of address (POA) as specified by SEBI. Apart from these PAN card has to be shown in original at the time of account opening from April 01, 2006. All applicants should carry original documents for verification by an authorized official of the DP, under his signature. Investor has to sign an agreement with DP in a depository prescribed standard format, which gives details of rights and duties of investor and DP. DP should provide the investor with a copy of the agreement and schedule of charges for their future reference. The DP will open the account in the system and give a unique account number, which is also called BO ID (Beneficial Owner Identification number) and used for all future transactions.


Bank account details are necessary for the protection of interest of investors. When any cash or non-cash corporate benefits such as rights or bonus or dividend is announced for a particular scrip, depositories provide to the concerned issuer /its RTA, the details of the investors, their

electronic holdings as on record / book closure date for reckoning the entitlement of corporate benefit. The disbursement of cash benefits such as dividend is credited directly by the Issuer/its RTA to the beneficiary owner through the ECS (Electronic Clearing Service wherever available) facility or by issuing warrants on which bank account details are printed for places where ECS facility is not available. The bank account number is mentioned on the dividend and warrant to avoid any fraudulent misuse. The bank account details will be those which are mentioned in account opening form or modified details that had been intimated subsequently by the investor to the DP.

Can an investor change the details of his bank account?

Yes. However, the investor must inform the DP regarding change in the bank account and corresponding change in MICR / IFSC code while updating their bank account details with DP. In the depository system monetary benefits on the security balances are paid as per the bank account details provided by the investor at the time of account opening. The investor must ensure that any subsequent changes in bank account details are informed to the DP.

What should be done if the address of the investor changes?

Investor should immediately inform his DP along with necessary documents, who in turn will update the records. This will obviate the need of informing different companies.


Proof of Address, certified copies of ration card/ passport! Voter ID/ PAN card/ driving License / bank passbook.


Ensure that all compulsory fields in the account opening form are filled (except PAN/ GIR & nomination which are optional).

In case of corporate, ensure a copy of board resolution of authorized signatories. Ensure proper authorization in case of power of attorney holder.

DP should give a copy of agreement to the client, including the charges.

Inform clients regarding standing instruction facility.

Branches of DP to co-ordinate & follow up with Head Office for account opening.

Ensure account is activated before forwarding Client 10 to client. ~ Inform settlement deadlines to client



SEBI has advised that from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a BO, when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are 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. All other transfer of securities consequent to closure of account, not fulfilling the above-stated criteria, would be treated like any other transaction and charged as per the schedule of charges agreed upon between the BO and the DP.


An investor can open more than one account in the same name with the same DP and also with different DPs. For all the accounts, investor has to strictly comply with KYC norms including Proof of Identity, Proof of Address requirements as stipulated by SEBI and also provide PAN number. The investor has to show the original PAN card at the time of opening of demat account.



ISIN (International Securities Identification Number) is a unique 12 digit alphanumeric identification number allotted for a security (E.g.- INE383C01018). Equity-fully paid up, equity-partly paid up, equity with differential voting /dividend rights issued by the same issuer will have different ISINs.



The Depositories Act permits the creation of pledge and hypothecation against securities. Securities held in a depository account can be pledged or hypothecated against a loan, credit, or such other facility availed by the beneficial owner of such securities. For this purpose, both the parties to the agreement, i.e., the pledger and the pledge must have a beneficiary account with NSDL. However, both parties need not have their depository account with the same DP. The nature of control on the securities offered as collateral determines whether the transaction is a pledge or hypothecation. If the lender (pledge) has unilateral right (without reference to borrower) to appropriate the securities to his account if the borrower (pledger) defaults or otherwise, the transaction is called a pledge.


While processing a pledge/hypothecation request, the DP should take care with regard to the following steps/points. Ensure that the instruction form is submitted in duplicate. On receipt of instruction for creation of pledge, check whether there is enough balance in pledger's account to effect the creation of pledge/hypothecation or not. If not, advise the client suitably. Ensure that all compulsory fields in the instruction form are entered. Ensure that request for confirmation of pledge is given before the closure date mentioned in the instruction form.



(1) A depository shall enter into an agreement with one or more participants as its agent. (2) Every agreement under sub-section (1) shall be in such form as may be specified by the byelaws.

Services of Depository
Any person, through a participant, may enter into an agreement, in such form as may be specified by the bye-laws, with any depository for availing its services.

Surrender of Certificate of Security

(1) Any person who has entered into an agreement under section 5 shall surrender the certificate of security, for which he seeks to avail the services of a depository, to the issuer in such manner as may be specified by the regulations. (2) The issuer, on receipt of certificate of security under sub-section (1), shall cancel the certificate of security and substitute in its records the name of the depository as a registered owner in respect of that security and inform the depository accordingly. (3) A depository shall, on receipt of information under sub-section (2), enter the name of the person referred in sub- section (1) in its records, as the beneficial owner.

Registration of Transfer of Securities with Depository

(1) Every depository shall, on receipt of intimation from a participant, register the transfer of

security in the name of the transferee. (2) If a beneficial owner or a transferee of any security seeks to have custody of such security, the depository shall inform the issuer accordingly.


Options to Receive Security Certificate or hold Securities with Depository

(1) Every person subscribing to securities offered by an issuer shall have the option either to receive the security certificates or hold securities with a depository. (2) Where a person opts to hold a security with a depository, the issuer shall intimate such depository the details of allotment of the security, and on receipt of such information the depository shall enter in its records the name of the allottee as the beneficial owner of that security.

Securities in Depositories to be in Fungible form

(1) All securities held by a depository shall be dematerialised and shall be in a fungible form. (2) Nothing contained in sections 153, 153A, 153B, 187B, 187C and 372 of the Companies Act, 1956 shall apply to the securities held by a depository on behalf of the beneficial owners.

Rights of Depositories and Beneficial Owner

(1) Notwithstanding anything contained in any other law for the time being in force, a depository

shall be deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner. (2) Save as otherwise provided in sub-section (1), the depository as a registered owner shall not have any voting rights or any other rights in respect of securities held by it. (3) The beneficial owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in respect of his securities held by a depository.


Register of beneficial owner

Every depository shall maintain a register and an index of beneficial owners in the manner provided in sections 150, 151 and 152 of the Companies Act, 1956.

Pledge or Hypothecation of Securities held in a Depository

(1) Subject to such regulations and bye-laws, as may be made in this behalf, a beneficial owner may with the previous approval of the depository create a pledge or hypothecation in respect of a security owned by him through a depository. (2) Every beneficial owner shall give intimation of such pledge or hypothecation to the depository and such depository shall thereupon make entries in its records accordingly. (3) Any entry in the records of a depository under sub- section (2) shall be evidence of a pledge or hypothecation.

Furnishing of Information and Records by Depository and Issuer

(1) Every depository shall furnish to the issuer information about the transfer of securities in the name of beneficial owners at such intervals and in such manner as may be specified by the byelaws. (2) Every issuer shall make available to the depository copies of the relevant records in respect of securities held by such depository.

Option to opt out in respect of any security

(1) If a beneficial owner seeks to opt out of a depository in respect of any security he shall inform the depository accordingly. (2) The depository shall on receipt of intimation under sub-section (1) make appropriate entries in its records and shall inform the issuer.


(3) Every issuer shall, within thirty days of the receipt of intimation from the depository and on fulfillment of such conditions and on payment of such fees as may be specified by the regulations, issue the certificate of securities to the beneficial owner or the transferee, as the case may be.

Act 18 of 1891 to Apply to Depositories

The Bankers' Books Evidence Act, 1891 shall apply in relation to a depository as if it were a bank as defined in section 2 of that Act. Depositories to indemnify loss in certain cases (1) Without prejudice to the provisions of any other law for the time being in force, any loss caused to the beneficial owner due to the negligence of the depository or the participant, the depository shall indemnify such beneficial owner. (2) Where the loss due to the negligence of the participant under sub-section (1) is indemnified by the depository, the depository shall have the right to recover the same from such participant.

Rights and Obligations of Depositories, etc.

(1) Subject to the provisions of this Act, the rights and obligations of the depositories, participants and the issuer whose securities are dealt with by a depository shall be specified by the regulations. (2) The eligibility criteria for admission of securities into the depository shall be specified by the regulations.



Share certificates, on dematerialization, are cancelled and the same will not be sent back to the investor. The shares, represented by dematerialized share certificates are fungible and, therefore, certificate numbers and distinctive numbers are cancelled and become nonoperative.

It enables processing of share trading and transfers electronically without involving share certificates and transfer deeds, thus eliminating the paper work involved in scrip-based trading and share transfer system.

Transfer of dematerialized securities is immediate and unlike in the case of physical transfer where the change of ownership has to be informed to the company in order to be registered as such, in case of transfer in dematerialized form, beneficial ownership will be transferred as soon as the shares are transferred from one account to another.

The investor is also relieved of problems like bad delivery, fake certificates, shares under litigation, signature difference of transferor and the like. There is no need to fill a transfer form for transfer of shares and affix share transfer stamps. There is saving in time and cost on account of elimination of posting of certificates. The threat of loss of certificates or fraudulent interception of certificates in transit that causes anxiety to the investors, are eliminated.



Some disadvantages were about the depository system were known beforehand. But since the advantages outweighed the shortcomings of dematerialisation, the depository system was given the go-ahead.

Lack of control: Trading in securities may become uncontrolled in case of dematerialized securities. Need for greater supervision: It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors. The role of key market players in case of dematerialized securities, such as stock brokers, needs to be supervised as they have the capability of manipulating the market.

Complexity of the system: Multiple regulatory frameworks have to be confirmed to, including the Depositories Act, Regulations and the various Bye Laws of various depositories. Additionally, agreements are entered at various levels in the process of dematerialization. These may cause anxiety to the investor desirous of simplicity in terms of transactions in dematerialized securities.

Besides the above mentioned disadvantages, some other problems with the system have been discovered subsequently. With new regulations people are finding more and more loopholes in the system. Some examples of the malpractices and fraudulent activities that take place are:

Current regulations prohibit multiple bids or applications by a single person. But investors open multiple demat accounts and make multiple applications to subscribe to IPOs in the hope of getting allotment of shares.

Some listed companies had obtained duplicate shares after the originals were pledged with banks and then sold the duplicates in the secondary market to make a profit. Promoters of some companies dematerialised shares in excess of the companys issued capital. Certain investors pledged shares with banks and got the same shares reissued as duplicates.


There is an undue delay in the settlement of complaints by investors against depository participants. This is because there is no single body that is in chargeof ensuring full compliance by these companies.



This chapter describes the research methodology adopted for the study. It includes methodology and limitation of the studies 1. Research plan: to meet the objectives of the studies undertaken, the descriptive respondents were adopted. 2. data sources: a) Primary data b) Secondary data Primary data: In this study questionnaire and personal interview methods have been used for receiving primary data. Secondary data: In this study information from various website has been used. Thus include going through various research projects. 3. Research Approach: survey research was adopted

4. Research instruments: Questionnaire was used to interview the respondents. A judicious mix of open needed and close-ended question was used. 5. Sampling plan:

Sampling unit: It consists of investors, brokers etc. Sampling size: 100 respondents were selected Sampling procedure: To obtain representative sample, non-sampling procedures were adopted. Sampling was done to silent the most accessible population.

Contact method: The respondents were personally interviewed.


Analysis method: The data was tabulated and frequency distribution was developed. The percentages are computed for different variables.




Research and Discussion

The analysis of collected facts and figures through questionnaire is detailed as under:

QUES. 1: Do you know about depository system? ANS: Options Yes No No. of respondent 94% 06%


Ques.2: Do you have demat account?

Ans: Yes No 70% 30%

no. of respondent

Inference: From the sample size of 100, 70 respondents having their depository account.


Ques.3: Do you satisfied with the fee structures of Depository Participant? No. of respondents Ans :

Options Yes No Up to some extent

No. of respondent 30 22 18

percentage 50% 31% 19%

Inference: out of 70 respondents, 50% respondents are satisfied,31% are not satisfied and 19% respondents are satisfied upto some extent with the fees structure of Depository Participant

Ques.4: What were the criteria for choosing the DP:


Ans: Options Distance convenience Service level Charges Reputation No. of respondent 17 22 20 11 percentage 24 31 28 17

Inference: There is a close response from the respondents,31% respondents are choosing their DP from the services provided by them and 28% are choosing by the charges

Ques.5: Do you have individual account or with company?


Ans Types Individual Company No. of respondent(%age) 40% 60%

Ques.6: Who can make a request for the demat of the security? Ans :

Types Company Registered holder of the company Depository Depository participant

No. of respondent 7 29 15 19

%age 10 43 20 27

Ques.7 : Is there any grievance to parties for NSDL? Ans : Options NO. OF RESPONDENT 58


30% 70%

Ques.8: How much time period is given to the parties to resolve their grievances for NSDL? Ans:


NO. OF RESPONDENT 15 34 15 6

PERCENTAGE 21% 48% 22% 9%

Inference: 48% respondents replied for the ii) option which is right.

Ques.9: In case of partnership firm account will be open in the name of: ANS:




%AGE 39 37 24


Inference:The respondents are also not too much aware about this question,the percentage of any authorized partner is less than the percentage of maximum holding partner

QUES.10: From which depository participant you make trading?

a) Sharekhan b) India bulls


c) Reliance d) ICICI e) Others

Sharekhan India Bulls Reliance ICICI Others

07 11 14 08 10

QUES.11: If your selected trading company increases their annual charges will you go with it? Ans:


02 29 19

QUES.12: According to you which one is the most important factor for trading company to enhance loyalty and customer? A) Provide maximum profit


B) Provide tips time to time C) No hidden charges D) Other factors Provide maximum profit Provide tips time to time No hidden charges Other factors 17 08 18 07

Ques13: Preferred Portfolio by Investors


Ans: Portfolio Equity Debt Balanced No. of Investors 46% 17% 37%

From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17% preferred Debt portfolio



1. It is found that the most of people know about depository system. 2. It is found that the many people have their demat account. 3. It is found that the many people have an account with company. 4. It is found that most of parties have no grievances for NSDL. 5. It is found that many people know about the demat securities. 6. It is found that many people disagree with the increasing the annual charges of trading company. 7. It is found that many customers dont want hidden charges for trading company. 8. It is found that many investors preferred the equity portfolio.


To conclude, it can be said that the research findings clearly reveal the goodwill and reputation of depository system among the customers. But there is a need to strengthen this depository system by spreading awareness about the services offered by NSDL, CSDL and its trading


companies through advertisement and by expanding the more branches of this system all over the country and also by tapping the potential customers through innovative means.




Referred Books:-

Financial institutions and markets- L.M. Bhale Research methodology-Mohit Gupta, Navdeep Aggarwal Financial services- Shashi k. Gupta, Nisha Aggarwal