Demat account

From Wikipedia, the free encyclopedia

This article needs additional citations for verification. Please help improve this article
by adding citations to reliable sources. Unsourced material may be challenged and
removed. (February 2011)
In India, shares and securities are held electronically in a Dematerialized (or "Demat") (/dimt/;)
account, instead of the investor taking physical possession of certificates. A Dematerialized
account is opened by the investor while registering with an investment broker (or sub-broker).
The 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 shares.
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.
Contents
1 Advantages of demat
2 Goal of Demat System
3 Demat benefits
4 Depository Participant (DP)
5 Demat conversion
6 Demat options
7 Fees involved
o 7.1 Account-opening fee
o 7.2 Annual maintenance fee
o 7.3 Transaction fee
8 Documents Required For Demat Account
[3]

9 Disadvantages of Demat
10 Transfer of Shares between (depository participant) DPs
o 10.1 Security recommendations
11 References
Advantages of demat
The bonus/right shares allotted to the investor will be immediately credited into his
account.There is no risk due to loss on account of fire, theft or mutilation. Transaction costs are
usually lower than that in the physical segment. A demat account also helps avoid problems
typically associated with physical share certificates. For example: delivery failures caused by
signature mismatch, postal delays and loss of certificate during transit. Further, it eliminates the
risks associated with forgery and due to damaged stock certificates. Demat account holders also
avoid stamp duty (as against 0.5 per cent payable on physical shares) and filling up of transfer
deeds. The biggest advantage of having demat account is that you don't have to pay for stamp
since these are electronically stored which reduces the transaction cost.
Goal of Demat System
India adopted the Demat System for electronic storing, wherein shares and securities are
represented and maintained electronically, thus eliminating the troubles associated with paper
shares. After the introduction of the depository system by the Depository Act of 1996, the
process for sales, purchases and transfers of shares became significantly easier and most of the
risks associated with paper certificates were mitigated.
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, 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 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).
Benefit to the company
The depository system helps in reducing the cost of new issues due to lower printing and
distribution costs. It increases the efficiency of the registrars and transfer agents and the
secretarial department of a company. It provides better facilities for communication and timely
service to shareholders and investors.
Benefit to the investor
The depository system reduces risks involved in holding physical certificates, e.g., loss, theft,
mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares.
It ensures faster communication to investors. It helps avoid bad delivery problems due to
signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on
transfer of shares. It provides more acceptability and liquidity of securities.
Benefits to brokers
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of
trading. It eliminates chances of forgery or bad delivery. It increases overall trading and
profitability. It increases confidence in their investors.
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. A Depository Participant (DP) is
an intermediary between the investor and the depository. A DP is typically a financial
organization like a bank, broker, financial institution, or custodian acting as an agent of the
depository to make its services available to the investors. Each DP is assigned a unique
identification number known as DP-ID. As of March 2006, there were a total of 538 DPs
registered with SEBI.
Demat conversion
Converting physical records of investments into electronic records is called "dematerialising" of
securities. In order to dematerialise physical securities, investors must fill in a Demat Request
Form (DRF), which is available with the DP and submit the same along with physical
certificates. Every security has an ISIN (International Securities Identification Number). A
separate DRF must be filled for each ISIN.
The complete process of dematerialisation is outlined below:
The investor surrenders the certificates for dematerialisation to the DP.
DP updates the account of the investor.
Demat options
There are many hundreds of Depository Participants (DPs) offering the Demat account facility in
India as of September 2011. A comparison of the fees charged by different DPs is detailed
below.
There are a few distinct advantages of having a bank as a DP. Having a Demat account with a
bank DP, usually provides quick processing, accessibility, convenience, and online transaction
capability to the investor. Generally, banks credit the Demat account with shares in case of
purchase, or credit a savings account with the proceeds of a sale, on the third day. Banks are also
advantageous because of the number of branches they have. Some banks give the option of
opening a demat account in any branch, while others restrict themselves to a select set of
branches. Some private banks also provide online access to the demat account. Hence, the
investors can conveniently check online details of their holdings, transactions and status of
requests through their bank's net-banking facility. A broker who acts as a DP may not be able to
provide these services.
Fees involved
There are four major charges usually levied on a demat account: account opening fee, annual
maintenance fee, custodian fee and transaction fee. Charges for all fees vary from DP to DP.
Account-opening fee
Depending on the DP, there may or may not be an opening account fee. Private banks, such as
HDFC Bank
[1]
and AXIS Bank, do not have one. However, players such as Kotak Securities,
[2]

Sushil Finance, ICICI Bank, Globe Capital, Karvy Consultants and Bajaj Capital Limited do
impose an opening fee. State Bank of India does not charge any account opening charge while
other maintenance and transaction charges apply. Most players levy this when re-opening a
demat account. However, the Stock Holding Corporation offers a lifetime account opening fee,
which allows the investor to hold on to his/her demat account for a long period. The fee is also
refundable.
Annual maintenance fee
This is also known as folio maintenance charges, and is generally levied in advance. It is charged
on annual or monthly basis.
Transaction fee
The transaction fee is charged for crediting/debiting securities to and from the account on a
monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and
ICICI Bank peg the fee to the transaction value, which is subject to a minimum amount. The fee
also differs based on the kind of transaction (buying or selling). Some DPs charge only for
debiting the securities, while others charge for both. Some DPs also charge the investor even if
the instruction to buy/sell fails or is rejected. In addition, service tax is also charged by the DPs.
In addition to the other fees, the DP also charges a fee for converting the shares from the
physical to the electronic form or vice-versa. This fee varies for both demat (physical-to-
electronic) and remat (electronic-to-physical) requests. For demat transactions, some DPs charge
a flat fee per request in addition to the variable fee per certificate, while others charge only the
variable fee.
For instance, Stock Holding Corporation has charged Rs 25 as the request fee and Rs 3 per
certificate as the variable fee. However, SBI has charged only the variable fee, as Rs 3 per
certificate. Remat requests also have charges akin to that of demat. However, variable charges
for remat are generally higher than demat.
Some of the additional features (usually offered by banks) are as follows. Some DPs offer a
frequent-trader account, where they charge frequent traders at lower rates than the standard
charges. 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. The account holder needs to
raise the balance when it falls below a certain amount prescribed by the DP. However, if the
holders also hold a savings account with the DP, they can provide a debit authorisation to the DP
for paying this charge. Finally, once choosing a DP, it would be prudent to keep all accounts
with that DP, so that tracking of capital gains liability is easier. This is because when calculating
capital gains tax, the period of holding will be determined by the DP, and different DPs follow
different methods. For instance, ICICI Bank uses the first in first out (FIFO) method to compute
the period of holding. The proof of the cost of acquisition will be the contract note. The
computation of capital gains is done account-wise.
Indian Banking System 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 to serve as proof of identity (POI) and proof of address (POA) as specified by SEBI.
An investor must have his/her PAN card in original at the time of opening of the account
(mandate effective from April 1, 2006).
All applicants should carry original documents for verification by an authorized official of the
depository participant, under his signature. Further, the investor has to sign an agreement with
the DP in a depository prescribed standard format, 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. The DP will open the account in the system and give an account number,
which is also called BOID (Beneficiary Owner Identification number). The DP may revise the
charges by giving 30 days notice in advance. SEBI has rationalised the cost structure for
dematerialisation by removing account-opening charges, transaction charges for credit of
securities, and custody charges vide circular dated January 28, 2005.
Documents Required For Demat Account
[3]

To open a Demat account you have to provide documents which fulfill the requirements of KYC
(Know Your Customer) norms. You have to sign a contract with Stock broker. Generally the
documents are:
PAN (Compulsory)
Bank statement (last 6 months)
One cancelled cheque
Address Proof
Income Tax Return
Two colour photos
Disadvantages of Demat
Trading in securities may become uncontrolled in case of dematerialized securities.
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.
For dematerialized securities, the role of key market players such as stock-brokers needs
to be supervised as they have the capability of manipulating the market.
Multiple regulatory frameworks have to be conformed to, including the Depositories Act,
Regulations and the various Bye-Laws of various depositories.
Agreements are entered at various levels in the process of dematerialization. These may
cause worries to the investor desirous of simplicity.
There is no provision to close a demat account, which is having illiquid shares. The
investor cannot close the account and he and his successors have to go on paying the
charges to the participant, like annual folio charges etc.
After liquidating the holdings, many Indian investors don't close their dp account.They
are unaware that DPs charge even on accounts with nil holdings.
Transfer of Shares between (depository participant) DPs
To transfer shares, an investor has to fill one of two kinds of Depository Instruction Slip (DIS).
The first check made is whether both Demat accounts are at the same depository. There are two
depositories: (CDSL (Central Depository Service (India) Limited) and NSDL (National
Securities Depository Limited)). If both demat accounts are not at the same depository, then an
Inter Depository Slip (Inter DIS) has to be filled and submitted. For example:
If there is one Demat account with CDSL and the other Demat account with NSDL, then
an Inter-DIS is needed. (In case the investor needs an Intra-DIS, the investor should
check with the broker, since brokers usually issue an Intra-DIS).
Now that the correct DIS has been determined, information pertaining to the transfer
transaction has to be entered: scrip name, INE number, quantity in words and figures.
Finally, the investor should submit that DIS to the broker with signatures.
The transfer broker shall accept that DIS in duplicate and acknowledge receipt of DIS on
duplicate copy.
The investor should submit the DIS when the market is open. Accordingly, date of submission of
DIS and date of execution of DIS can be same or a difference of one day is also acceptable. The
investor also has to pay the broker some charges for the transfer.
Security recommendations
A Depository Instruction (DIS) is almost like a cheque book, so it can be misused if issued
blank. Hence, an investor should exercise sufficient caution while issuing a DIS slip. For
example: an investor should deposit only a completely filled-in slip to the broker. Unfilled rows
should be cancelled out so that they cannot be tampered with.


The trading on stock exchanges in India used to take place through open outcry without use of
information technology for immediate matching or recording of trades. This was time consuming
and inefficient. This imposed limits on trading volumes and efficiency. In order to provide
efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully automated
screen based trading system where a member can punch into the computer quantities of securities
and the prices at which he likes to transact and the transaction is executed as soon as it finds a
matching sale or buy order from a counter party. Screen based electronic system electronically
matches orders on a strict price/time priority and hence cuts down on time, cost and risk of error,
as well as on fraud resulting in improved operational efficiency. It allows faster incorporation of
price sensitive information into prevailing prices, thus increasing the informational efficiency of
markets. It enables market participants, irrespective of their geographical locations, to trade with
one another simultaneous, improving the depth and liquidity of the market.
It provides full anonymity by accepting orders, big or small, from members without revealing
their identity, thus providing equal access to everybody. It also provides a perfect audit trial,
which helps to resolve disputes by logging in the trade execution process entirety. The sucked
liquidity from other exchanges and in the very first year of its operation, NSE became the
leading stock exchange in the country, impacting the fortunes of other exchanges and forcing
them to adopt SBTS also. Today India can boast that almost 100% trading take place through
electronic order matching.
In order to promote dematerialization of securities, NSE joined hands with leading financial
institutions to establish the national securities depository Ltd. (NSDL), the first depository in the
country, with the objective of enhancing the efficiency in settlement systems as also to reduce
the menace of fake/forged and stolen securities. This has ushered in an era of dematerialised
trading and settlement. SEBI has made dematerialised settlement mandatory in an ever -
increasing number of securities in a phased manner, thus bringing about an increase in the
proportion of shares delivered in dematerialised form. There is an increasing preference to settle
trades, particularly in high value securities, in demat form. Such high level of demat settlement
reassures success of rolling settlement.
What is DEMAT
In India , a demat account, the abbreviation for dematerialised account, is a type of banking
account which dematerializes paper-based physical stock shares. Conversion of Securities from
Physical (Paper) Mode into Electronic Mode is Called Dematerialisation. The Client opens
Demat Account with any DP. Upon Demat, the Certificates are destroyed and credit entry of
exactly equal number of Securities is created in Depository in Electronic mode. The B.O.
account of holder is credited and the securities loose their identities. The dematerialised account
is used to avoid holding physical shares: the shares are bought and sold through a stock broker.
This account is popular in India . The market regulator, securities and exchange board of India
(SEBI) mandates a demat account for share trading above 500 shares. As of April 2006, it
became mandatory that any person holding a demat account should possess a permanent account
number (PAN), and the deadline for submission of PAN details to the depository lapsed on
January 2007.
Dematerialisation is the process by which physical certificates of an investor are converted to an
equivalent number of securities in electronic form and credited in the investor's account with its
DP. In order to dematerialize certificates; an investor will have to first open an account with a
DP and then request for the dematerialisation of certificates by filling up a dematerialisation
request form [DRF], which is available with the DP and submitting the same along with the
physical certificates. The investor has to ensure that before the certificates are handed over to the
DP for demat, they are defaced by marking "Surrendered for Dematerialisation" on the face of
the certificates.
Objective of the Study
The main objective of the study is to know about the potential of the market regarding people's
dealing in share market.
To know the role of Demat Account .
To know the procedure of opening DEMAT ACCOUNT.
The objective is to know that how many people in the city are aware of the UNICON
SECURITIES PVT. LTD.
To know where people have already opened their demat a/c and on what basis.
Procedure for Opening an Account
A demat account are opened on the same lines as that of a Bank Account. Prescribed Account
opening forms are available with the DP, needs to be filled in. Standard Agreements are to be
signed by the Client and the DP, which details the rights and obligations of both parties
The DP officials will make available the relevant account opening form (depending on whether
the client is a retail investor or corporate client/clearing member) and specify the list of
documents regarding references that should be submitted along with the form. It will also give a
copy of the relevant agreement to be entered with the client, in duplicate.
The client will submit the duly filled in account opening form and client has to visit personally
for opening the account in DP. The DP officials have to do in person verification and affix the
"IN PERSON VERIFICATION" stamp on the account opening form. It should also furnish such
documents regarding references, as specified by the DP, along with the account opening form.
After executing the agreement the client has to forward it to the DP.
The DP officials will verify that the account opening form is duly filled in. It will also verify
the enclosed documents, if any. Incomplete forms will be forwarded to the client for
rectification.
For Corporate Clients, the DP officials will verify if the board resolution for the authorized
signatories is enclosed.
In case the documents are not proper, the DP officials will reject the form and intimate the
client of the same, stating the reasons for doing so.
If the form is in order; the DP officials will accept the same and affix the stamp "verified with
original" on each and every proof after seeing the original proofs.
After completion of all documentation, the DP officials will verify the pan from income tax
website. And affix the stamp "PAN VERIFIED" with date and sign on the stamp.
The DP officials will enter the client details as mentioned in the account opening form in the
DPM (software provided by NSDL & CDSL to the Participant) screen provided for the purpose.
In case of NSDL A/c opening the SR. Assist will capture all the details in the DPM and record
the client's signature (on the form) as specimen for authorizations in the future.
After entering client details in the system, a client account number will be generated by the
DPM. The DP officials will enter this in the account opening form. After that the officers will
verify the details in the DPM captured by the SR. Assist. and activate the account.
The DP officials are not allowed to give the demat a/c no to the clients until the a/c is activate,
this is applicable for both NSDL & CDSL.
When the demat a/c is activated the DP officials have to send the client master and the copy of
agreement between DP and client at the client's address
DEMAT Process
The registered holder of the securities makes the request.
Securities must be recognised by Depository as eligible.
Client submits DRF & physical certificates to DP. DP checks securities.
Client defaces certificates and DP punches two holes on name of company.
DP enters demat request in system for Depository.
DP dispatches certificates along with DRF to R&T.
Depository records the details and sends to R&T.
R&T agent verifies the details and confirms to Depository.
Depository credits the demat securities to BO a/c of client and intimates DP electronically.
DP issues statement to client