You are on page 1of 7

Demat account From Wikipedia, the free encyclopedia This article needs additional citations for verification.

Please help improve this article byadding citations to reliable sources. Unsourced material may be challenged and removed.(February 2011) In a 'demat account' , shares and securities are held electronically instead of the investor taking physical possession of certificates. A demat account is opened by the investor while registering with an investment broker (or sub-broker). The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a demat account for the purpose of transacting shares. Access to the demat account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the demat account are automatically made once transactions are confirmed and completed. Contents [hide]
      

1 Advantages of demat 2 Goal of Demats System 3 Demat benefits 4 Depository Participant (DP) 5 Demat conversion 6 Demat options 7 Fees involved
o o o o

7.1 Account-opening fee 7.2 Annual maintenance fee 7.3 Custodian fee 7.4 Transaction fee

 

8 Disadvantages of Demat 9 Transfer of Shares between DPs
o

9.1 Security recommendations

10 References

thefts etc. Demat account holders also avoid stamp duty (as against 0. Automatic credit into demat account for shares arising out of bonus/split. fake securities. Further. delays. it eliminates the risks associated with forgery and due to damaged stock certificates. postal delays and loss of certificate during transit.[edit]Advantages of demat A demat account also helps avoid problems typically associated with physical share certificates. [edit]Goal of Demats System India adopted the Demat System for electronic storing. Transmission of securities is done by DP. [edit]Demat benefits The benefits of demat are enumerated[by whom?] as follows:     Easy and convenient way to hold securities Immediate transfer of securities No stamp duty on transfer of securities Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery. consolidation/merger. purchases and transfers of shares became significantly easier and most of the risks associated with paper certificates were mitigated. eliminating the need for notifying companies. the process for sales. Traders can work from anywhere (e. are mostly eliminated) Reduced paperwork for transfer of securities Reduced transaction cost No "odd lot" problem: even one share can be sold 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.         . even from home). for example: delivery failures caused by signature mismatch. wherein shares and securities are represented and maintained electronically. etc.5 per cent payable on physical shares) and filling up of transfer deeds. A single demat account can hold investments in both equity and debt instruments. thus eliminating the troubles associated with paper shares. After the introduction of the depository system by the Depository Act of 1996.In India it is coming gradually.g.

It provides more acceptability and liquidity of securities.g. [edit]Depository Participant (DP) Main article: Depository participant A depository (in simple terms) is an institution holding a pool of pre-verified shares held in electronic mode that offers efficient settlement of transactions. [edit]Demat conversion Converting physical records of investments into electronic records is called "dematerialising" of securities.Benefit to the company The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. A DP is typically a financial organization like a bank. forgery. mutilation.. broker. theft. investors must fill in a Demat Request Form (DRF). It increases overall trading and profitability. No stamp duty is paid on transfer of shares. Benefits to brokers It reduces risks of delayed settlement. e. It provides better facilities for communication and timely service to shareholders and investors. It ensures transfer settlements and reduces delay in registration of shares. It ensures faster payment on sale of shares. The complete process of dematerialisation is outlined below: . A Depository Participant (DP) is an intermediary between the investor and the depository. It eliminates chances of forgery or bad delivery. Benefit to the investor The depository system reduces risks involved in holding physical certificates. It ensures greater profit due to increase in volume of trading. Every security has an ISIN (International Securities Identification Number). It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. Each DP is assigned a unique identification number known as DP-ID. which is available with the DP and submit the same along with physical certificates. financial institution. or custodian acting as an agent of the depository to make its services available to the investors. It increases confidence in their investors. loss. It helps avoid bad delivery problems due to signature differences. there were a total of 538 DPs registered with SEBI. etc. As of March 2006. It ensures faster communication to investors. etc. A separate DRF must be filled for each ISIN. In order to dematerialise physical securities.

[1] Sushil Finance. The fee is also refundable. A broker who acts as a DP may not be able to provide these services. [edit]Account-opening fee Depending on the DP. However. State Bank of India does not charge any account opening charge while other maintenance and transaction charges apply. [edit]Demat options There are many hundreds of Depository Participants (DPs) offering the Demat account facility in India as of September 2011. the investors can conveniently check online details of their holdings. such as HDFC Bank and AXIS Bank. Most players levy this when re-opening a demat account. [edit]Custodian fee . Some banks give the option of opening a demat account in any branch. [edit]Annual maintenance fee This is also known as folio maintenance charges. custodian fee and transaction fee. convenience.  The investor surrenders the certificates for dematerialisation to the DP. There are a few distinct advantages of having a bank as a DP. However. banks credit the Demat account with shares in case of purchase. transactions and status of requests through their bank's netbanking facility. Private banks. the Stock Holding Corporation offers a lifetime account opening fee. Hence. Generally. and online transaction capability to the investor. Globe Capital. usually provides quick processing. which allows the investor to hold on to his/her demat account for a long period. or credit a savings account with the proceeds of a sale. do not have one. on the third day. Charges for all fees vary from DP to DP. players such as Kotak Securities. Having a Demat account with a bank DP. there may or may not be an opening account fee. Karvy Consultants and Bajaj Capital Limited do impose an opening fee. while others restrict themselves to a select set of branches. Banks are also advantageous because of the number of branches they have. [edit]Fees involved There are four major charges usually levied on a demat account: account opening fee. accessibility. A comparison of the fees charged by different DPs is detailed below. Some private banks also provide online access to the demat account. annual maintenance fee. and is generally levied in advance. DP updates the account of the investor. ICICI Bank.

However. While some DPs. ICICI Bank uses the first in first out (FIFO) method to compute the period of holding. while others charge for both. The proof of the cost of acquisition will be the contract note. variable charges for remat are generally higher than demat. DPs will not charge a custody fee for an ISIN on which the companies have paid one-time custody charges to the depository. However. In addition to the other fees. as Rs 3 per certificate. service tax is also charged by the DPs. while others charge only the variable fee. Some DPs also charge the investor even if the instruction to buy/sell fails or is rejected. . such as SBI. The account holder needs to raise the balance when it falls below a certain amount prescribed by the DP.This fee is charged monthly and depends on the number of securities (i.5 to Rs 1 per ISIN per month. Remat requests also have charges akin to that of demat. charge a flat fee per transaction. It generally ranges between Rs 0. However. they can provide a debit authorisation to the DP for paying this charge. The computation of capital gains is done account-wise. Some DPs charge only for debiting the securities. [edit]Transaction fee The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. This is because when calculating capital gains tax. Stock Holding Corporation has charged Rs 25 as the request fee and Rs 3 per certificate as the variable fee. the period of holding will be determined by the DP. In addition.e. ISINs) held in the account. The fee also differs based on the kind of transaction (buying or selling). so that tracking of capital gains liability is easier. This fee varies for both demat (physical-to-electronic) and remat (electronic-to-physical) requests. SBI has charged only the variable fee. Some DPs offer a frequent-trader account. some DPs charge a flat fee per request in addition to the variable fee per certificate. HDFC Bank and ICICI Bank peg the fee to the transaction value. For demat transactions. For instance. once choosing a DP. 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. For instance. which is subject to a minimum amount. Some of the additional features (usually offered by banks) are as follows. it would be prudent to keep all accounts with that DP. Finally. the DP also charges a fee for converting the shares from the physical to the electronic form or vice-versa. if the holders also hold a savings account with the DP. where they charge frequent traders at lower rates than the standard charges. and different DPs follow different methods.

SEBI has rationalised the cost structure for dematerialisation by removing account-opening charges. 2005 advised that with effect from January 9. The DP may revise the charges by giving 30 days notice in advance. 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. which is also called BOID (Beneficiary Owner Identification number). under his signature. and custody charges vide circular dated January 28. by a DP on a Beneficiary Owner (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. no charges shall be levied by a depository on DP and consequently. The account opening form must be supported by copies of any one of the approved documents to serve as proof of identity (POI) and proof of address (POA) as specified by SEBI. i. The DP will open the account in the system and give an account number. transaction charges for credit of securities. [edit]Disadvantages of Demat   Trading in securities may become uncontrolled in case of dematerialized securities. including the Depositories Act. Further. All applicants should carry original documents for verification by an authorized official of the depository participant. SEBI has vide circular dated November 9. the role of key market players such as stock-brokers needs to be supervised as they have the capability of manipulating the market. an investor has to approach a DP and fill up an account opening form. 2006). Multiple regulatory frameworks have to be conformed to. 2006. which details rights and duties of investor and DP. DP should provide the investor with a copy of the agreement and schedule of charges for their future reference. 2005. An investor must have his/her PAN card in original at the time of opening of the account (mandate effective from April 1. Regulations and the various Bye-Laws of various depositories. the BO Account at transferee DP should also be a joint account in the same sequence of ownership. For dematerialized securities.[2] In case the BO Account at transferor DP is a joint account.Indian Banking System First. Further.e. provided the BO Account(s) at transferee DP and at transferor DP are one and the same. the investor has to sign an agreement with the DP in a depository prescribed standard format. identical in all respects.   .

The first check made is whether both Demat accounts are at the same depository. If both demat accounts are not at the same depository. then an Inter Depository Slip (Inter DIS) has to be filled and submitted. The transfer broker shall accept that DIS in duplicate and acknowledge receipt of DIS on duplicate copy. the investor should submit that DIS to the broker with signatures. (In case the investor needs an Intra-DIS. Accordingly. [edit]Transfer of Shares between DPs To transfer shares. information pertaining to the transfer transaction has to be entered: scrip name.  Now that the correct DIS has been determined. . an investor has to fill one of two kinds of Depository Instruction Slip (DIS). the investor should check with the broker. INE number. Agreements are entered at various levels in the process of dematerialization. Finally. Otherwise. There are two depositories: (CDSL (Central Depository Securities Limited) and NSDL (National Securities Depository Limited)). quantity in words and figures. The investor also has to pay the broker some charges for the transfer.   The investor should submit the DIS when the market is open. These may cause worries to the investor desirous of simplicity. date of submission of DIS and date of execution of DIS can be same or a difference of one day is also acceptable. an Intra Depository Slip (Intra DIS) has to be filled and submitted. then an Inter-DIS is needed. since brokers usually issue an Intra-DIS). For example:  If there is one Demat account with CDSL and the other Demat account with NSDL.