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DEMAT

Introduction

Demat refers to a dematerialized account. Just as we have to open an account with a bank if
we want to save your money, make cheque payments etc, we need to open a demat account
if we want to buy or sell stocks. So it is just like a bank account where actual money is
replaced by shares. We have to approach the DPs (remember, they are like bank branches),
to open our 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.

Let's say our portfolio has 100 of Satyam, 50of Suzlon, 20 of ICICI BANK, 50 of Tech
Mahindra and 100 of TCS shares. All these will show in our demat account. So we don't
have to possess any physical certificates showing that us own these shares. They are all held
electronically in our account. As we buy and sell the shares, they are adjusted in our account.
Just like a bank passbook or statement, the DP will provide you with periodic statements of
holdings and transactions.

Individuals, companies, Trusts, Partnership firms, NRIs, HUF, Banks and Institutions are
allowed to open a depository account with any depository through a depository participant.
The investor would need to execute a standard form giving all his details, bank details,
instruction details, nomination details and off-course photograph and signature. Along with
this form, the investor would also have sign an agreement with the depository participant
which usually forms a standard part of the account opening process. The details on the form
have to be matched with a photocopy of the investor's passport, driving license etc. to certify
the mentioned details. If the investor is an NRI, then the client will have to provide overseas
address, provide copy of RBI Approval, if any. The RBI Approval is not mandatory for
opening of a DP. Account but is required to receive shares into the account when purchased
through the secondary market.
Dematerialized account number is quoted for all transactions to enable electronic settlements
of trades to take place. Every shareholder will have a Dematerialized account for the purpose
of transacting.Access to the Dematerialized 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 Dematerialized account are automatically made once
transactions are confirmed and completed.

A demat account holds all the shares that you purchase in electronic or dematerialized form.
... Like the bank account, a demat account holds the certificates of your financial instruments
like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs).

The investor – a buyer or seller of shares, to do his business, should start an account with a
depository. This account is known as demat account. The depository may be a stock broker
or a bank. The demat account is thus 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. So a demat account is a must for
trading and investing.

In India, Depository Services are provided by NSDL (National Securities Depository) and
CDSL (Central Depository Services). NSDL is the first depository established in 1996 to
handle the process of Dematerialization and CDSL was established in 1999. SEBI generally
oversees the rules and regulation of Depository Services.

For retail investors, the Demat Services are offered through Depository Participants (DP).
Stock Brokers are generally known as Depository Participants(DP).Some major Depository
Participants in India are IIFL, Karvy, Angel Broking,Trade Smart Online etc.

OBJECTIVES AND SCOPE


Objcetives

The main objectives of the study is to kbow about the potential of maret raegarding people
dealing in share market.

To know the role of Demat account

To know the procedure of opening demat account

To know where people have already opened their demat account and on what basis

Aims and objectives of demat account are:

1. To hold all the shares in electronic or dematerialized form.

2. To hold the certificates of an investor's financial instruments like bonds, government


securities, shares, mutual funds and exchange traded funds instead of giving the physical
possession of certificates to him.

3. To provide a safe way to keep the investments.

4. To offer a convenient way to keep track of one's investments.


Theoretical Perspective

What is dematerialization?

One of the most impactful reform measures in the stock market was the introduction of
dematerialization. Simply put, dematerialization is the practice of keeping and delivering
share certificates to investors in electronic forms rather than in the physical form like a
documented printed paper.

It is the process by which physical certificates of an investor are converted to an equivalent


number of securities in electronic form and credited into the owner’s account with his
depository participant.

Who is a depository and who is depository participant?

For the introduction of dematerialization, there should be an institution or organization who


should keep the share certificates in electronic forms. That institution is called 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. At present, there are two depositories viz. National Securities
Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are
registered with SEBI.

The depositories don’t directly interact with the customers who purchases and sells shares.
Rather, they provide their services like keeping of share certificates in electronic forms
through another set of institutions called depository participants (DP).

According a recent Economic Times report, about 3.76 million fresh demat accounts were
opened in the financial year ending March 31, 2018, surpassing the previous record of 3
million in 2007-08.

Depository Participant
A Depository Participant (DP) is an agent of the depository. It is through this agent that the
depository interfaces with the investor and provides depository services. Depository
participant functions are provided by diverse institutions recognised by the SEBI.

Public financial institutions, scheduled commercial banks, foreign banks operating in India
with the approval of the Reserve Bank of India, state financial corporations, custodians,
stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or
Share Transfer Agent complying with the requirements prescribed by SEBI can be registered
as DP.

In India, a Depository Participant (DP) is described as an agent of the depository. They are
the intermediaries between the depository and the investors. The relationship between the
DPs and the depository is governed by an agreement made between the two under the
Depositories Act.
BENEFITS OF DEMANT A/C

Demat account for shares and securities with business purpose

The benefits of demat are 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, fake securities, delays, thefts etc. 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 Depository participant (DP) gets registered with all
companies in which investor holds securities eliminating the need to correspond with
each of them separately.
 Transmission of securities is done by DP, eliminating the need for notifying companies.
 Automatic credit into demat account for shares arising out of bonus/split,
consolidation/merger, etc.
 A single demat account can hold investments in both equity and debt instruments.
 Traders can work from anywhere (e.g. even from home).

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The procedure to be followed to open a Demat account is below:


1. Account Opening Form: A person to open a Demat account has to fill the account opening
form.with the form he needs to give a copy of PAN card, residence proof, photos etc.

2. Sign the agreement:


The aggrement contains certain rights and regulation. The investor has to then sign it and
submit it to DP and the DP charges certain fee and would give a copy of signed aggrement
to the investor.

3. Client ID: The DP would give the Client ID once the investors depository account is
opened. These numbers are unique.

4. Instruction Slips: the DP would give the account holder the pre-printed instruction slips
for depository services. The investor has to keep it safe.

5. Dead Lines: The DP would give the account holders a list of dead lines for giving
instruction for various depository services such as transfer , purchase etc.
Procedure for Purchasing Dematerialized Securities
The procedure for purchasing dematerialized securities is also similar to the procedure for
buying physical securities.
1. Investor instructs DP to receive credits into his account in the Prescribed form. There may be
one time standing instruction or Separate instruction each time to receive credits.
2. Investor purchases securities in any of the stock exchanges linked to Depository through a
broker.
3. Broker receives payment from investor and arranges payment to Clearing corporations.
4. Broker gives instructions to DP to debit clearing account and credit Client's account. Investor
receives shares into his account by way of book entry
Procedure for Selling Dematerialized Securities
The procedure for selling dematerialized securities in stock exchanges is similar as selling
physical securities. The only major difference is that instead of delivering physical securities to
the broker, the investor instructs his DP to debit his demat account with the number of securities
sold by him and credit the brokers clearing account. The procedure for selling dematerialized
securities is given below:
1. Investor sells securities in any of the stock exchange linked to depository through a broker.
2. Investor instructs his DP to debit his demat account with the number of securities sold and
credit the broker's clearing account.
3. Before the pay-in-day, broker of the investor transfers the securities to clearing corporation.
4. The broker receives payment from the stock exchange.
5. The investor receives payment from the broker for sale of securities in the same manner as
received in case of sale of physical securities.

Benefits of Dematerialization Account


• Safety : If we are holding our shares, bonds etc in physical (paper) form, there are chances of
its theft, mutilation, and loss. Moreover, we are also exposed to the risks of fake papers, bad-
delivery or delays at the time of transfer of physical securities. However, in DEMAT accounts;
we can preserve our long-term investments safely and securely.
• Convenience: When we want to sell our dematerialized shares or redeem our debentures in
DEMAT account; there are no hassles of filling up transfer forms, sending redemption requests
or any other messy, costly and time-consuming paper work. We can conveniently transfer our
securities through electronic transfers or just by signing one 'Delivery Instruction Slip', which is
nothing but our chequebook for DEMAT Accounts.

HDFC

How does it works

A Depository is like a bank where securities are held in electronic form. There are two
Depositories in India – National Securities Depository Limited (NSDL) and Central
Depository Services (India) Limited (CDSL).
Under the Depositories Act, investors can use the services of these Depositories through
Depository Participants (DP) such as HDFC Bank.
There are a number of benefits:
 Settlement of securities are traded on exchanges and as well as off-market transactions
 Shorter settlements enhance liquidity
 No stamp duty on the transfer of securities held in Demat form
 Changing your address, registering a power of attorney and even signatures can be effected
in Demat accounts by submitting requests along with the relevant documents to the
Depository Participant
HDFC Bank also facilitates registration of SPEED-e (NSDL) & Easiest (CDSL). These
internet-based transaction allows you to submit delivery instructions electronically, via the
SPEED-e / Easiest website. This way, you have security when processing transactions,
without the hassle of preparing and submitting instruction slips.
With facilities like 'IDEAS' & Easi, you can view the current transactions and balances of
your Demat Account in real-time.
You can also hold mutual funds in a Demat Account. There are three steps to access this
facility:
 1. Give your Demat Account details to the Asset Management Company (AMC) / Registrar
and Transfer Agent (RTA).
 2. Submit a request to your Depository Participant (DP) for conversion of existing Mutual
Fund units.
 3. Buy Mutual Fund units through the stock exchange platform.
This way, investors have a single Demat Account Transaction / Holding Statement for
Shares, Debentures and Mutual Fund units.

CONCEPTS and Process

Depository Concepts
A Depository is like a bank where securities are held in electronic form. There are two
Depositories in India – National Securities Depository Limited (NSDL) and Central
Depository Services (India) Limited (CDSL).
Under the Depositories Act, investors can use the services of these Depositories through
Depository Participants (DP) such as HDFC Bank.
Types of account include:
 Resident Individual
 Hindu Undivided Family (HUF)
 Domestic Corporate
 Non-Resident Indian (NRI)
 Clearing Member (Pool Account)
 Commodities
 Margin

Dematerialisation of Securities
This involves converting your Physical Securities into an electronic format.
Since Stock Exchange transactions can be handled in Demat form only, it is good to hold
your securities in electronic form. This way, it’s easy to make a transfer to another account
and you will not attract stamp duty.
Points to Remember:
 Submit original certificates with a Demat Request Form (DRF)
 Ensure that you have signatures from all account holders
 Certificates should state ‘Surrendered for De-materialization’ your client ID and DP ID
 Make your DRF submission in triplicate, or as requested by your DP
When HDFC Bank has received the DRF and certificates, we will:
 Verify all names as per our records
 Verify all signatures as per our records
 Forward the certificates to the relevant Registrar or Company
The De-materialisation credit process normally takes around 30 days but may vary
depending on the Registrar and Company.
Dematerialisation Credit
 After receiving the securities certificates and DRF, the Registrar/Company will process the
request and arrange to credit the equivalent quantity into your Demat Account. This process
takes around 30 days but may vary from one Registrar/Company to another.
 You may verify your monthly Demat transaction statement in months when transactions
occur. You can also check your statement on the bank’s website, if you are a customer and
have linked your Demat Account. The status will be reflected as "Pending Demat" till the
time the electronic credit is made to your account. Once the credit is made, it will be reflected
/ added in the beneficiary balance.
 An SMS is also sent to you, intimating you of demat credits.
Rejection of Demat Requests
 In case your Demat request is rejected, kindly contact the branch where it was submitted for
assistance on receipt, rectification and re-submission of your demat request.
 An SMS is also sent to you, intimating you of demat rejection.
 You may arrange to re-submit the securities to us for Dematerialisation, after necessary
rectifications. Please ensure that a fresh DRF is submitted and not the one that has just been
rejected.
Transmission-cum-Demat
 In case security certificates are held jointly with a person who is deceased, the surviving
holders can submit the certificates along with an original / notarized / gazette attested copy
of the death certificate of the deceased and a ‘Transmission cum Demat’ form. The
combination of names of the surviving holders on the certificates and on the account may be
in the same or reverse order.
 Ensure that an application, in the required format, is submitted along with each DRF.
Transposition cum Demat

In case security certificates are held jointly but the order of names on the certificates do not
match exactly with the order of names in which the Demat Account is held, then the holders
can submit a 'Transposition cum Demat' form along with the DRF and certificates to enable
Demat of these certificates into such a Demat Account.
Eg. Certificates held by A & B or A & B & C can be dematted into a Demat account held
by B & A or C & B & A respectively
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