In India, shares and securities are held electronically in a Dematerialized (or “Demat”) 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. IMPORTANCE:
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. Goal of Demats 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 enumerate 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.
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.
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 and AXIS Bank, do not have one. However, players such as Kotak Securities,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. as Custodian fee This fee is charged monthly and depends on the number of securities (i.e. ISINs) held in the account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month. DPs will not charge a custody fee for an ISIN on which the companies have paid one-time custody charges to the depository. 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 chargesvide circular dated January 28, 2005.
Further, SEBI has vide circular dated November 9, 2005 advised that with effect from January 9, 2006, no charges shall be levied by a depository on DP and consequently, 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, provided the BO Account(s) at transferee DP and at transferor DP are one and the same, i.e. 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.
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. Most of the Indian investors are laymen and do not know the seriousness of not closing the dp account, after liquidating the holdings. Many DPs are going on charging dp charges to such dp accounts with nil holdings. For US persons, a demat account is subject to FBAR reporting Transfer of Shares between 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 Securities 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. Otherwise, an Intra Depository Slip (Intra 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.
hat is demat account ?
Demat refers to a dematerialised account. Demat account is just like a bank account where actual money is replaced by shares. A Demat Account is required to buy or sell stocks. A Demat Account holds portfolio of shares in electronic form and obviates the need to hold shares in physical form.In India, the government has mandated two entities –National Securities Depository, or NSDL, and Central Depository Services (India), or CDSL – to be the custodian of dematerialized securities.As of April 2006, it became mandatory that any person holding a demat account should posses a permanent Account number (PAN) .
Procedure for getting Demat account:-
1.Fill demat request form (DRF) (obtained from a depository participant or DP with whom your depository account is opened). 2.Deface the share certificate(s) you want to dematerialise by writing across Surrendered for dematerialisation.
3.Submit the DRF & share certificate(s) to DP. DP would forward them to the issuer / their R&T Agent .
4.After dematerialisation, your depository account with your DP, would be credited with the dematerialised securities. ADVANTAGES OF DEMAT ACCOUNT
A Demat Account offers a secure and convenient way to keep track of shares .
It provides the immediate transfer of securities.
On transfer of security there is no stamp duty .
Cost reduction on transcation .
Nomination facility is available .
Reduction in paperwork involved in transfer of securities .
Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.
Any change in address recorded with DP gets registered electronically 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 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 . You will receive the statement of account of your transactions/holdings periodicaly .
What is Demat Account ?
Demat account is mandatory for trading and investing of shares. Demat refers to dematerialized account. Demat Account is a safe secure and convenient way where you can buy and sell the shares without any paper work and all the things will be taken care by the DP (Depository Participants).If you have demat account you need not to show any kind of physical certificate that you have these shares. They held automatically in your account. DP will also provide you monthly statement of your transaction just like a bank statement
How to Open a Demat account?
To open a Demat account you have to approach DP and he will be guided you the official procedure to open an account. To see who the register DP is, you can visit NSDL and CDSL website .You can choose the DP of your own choice. On opening a demat account, a unique BOID (Beneficial Owner Identification) Number is allotted, which should be quoted in all future transactions. You can open a Demat account with no balance of shares, there is no minimum balance is required Documents required for opening a Demat Account? ?
1) To open a demat account you have to fill demat request form 2) One Passport size photograph, proof of address like Voter ID card, electricity bill or Ration Card, Employee ID Card, Bank attestation and Latest IT Return 3) Submit the DRF & share certificate(s) to DP. DP would forward them to the issuer / their R&T Agent. 4) Deface the share certificate(s) you want to dematerialize by writing across Surrendered for dematerialization 5) After dematerialization, your depository account with your DP would be credited with the dematerialized securities. 6) You have to Submit the PAN Card as a proof of identity .As of April 2006 it ismandatory, if any person want to open a demat account should have a PAN CARD (Permanent Account number) . Without a PAN CARD you are not be eligible to open a Demat account
Benefits of Demat Account
Nomination facility is available in Demat account
You can purchase ,hold and sell shares in electronic form
You can save a transaction cost with quick transfer
Shares are credit automatically in Demat account ,no paper work is required It is quick, easy, safe and secure, it reduces time taken during trading and
avoiding the problem like signature mismatch and loss of certificates and the risk due to fire and theft Demat account holders need not pay stamp duty posted.
You can even sold one share as per your choice
You can open as many account ,there is no limit on that, and you can open your account before you buy your first security You can open a multiple demat account, which can be operated by multiple holders Demat Account Opening fees
Few banks will not charge you the demat account opening fees, but there is some annual maintenance charges as well as transaction charges on Demat account
Custodian fees depends on the number of securities and this fees is charged monthly (international securities identification numbers — ISIN) held in the account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month.
DPs will not charge custody fee for ISIN on which the companies have paid one-time custody charges to the depository.
On a monthly basis transaction fees is charges for crediting/debiting securities from the account. The fee also based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities while others charge for both. The DPs also charge if your instruction to buy/sell fails or is rejected. In addition, service tax is also charged by the DPs.
Demat of Securities
Demat of securities -> It converts securities into electronic form from physical shares held by you To Demat your physical holding of shares, you need to open a demat account which is called “Beneficiary Account”. You need to fill up the Demat Request Form(DRF),which are serially numbered. In case of joint holding all the joint holders need to sign the form. Holding in only those securities that are admitted for dematerialization by NSDL or CDSL, which can be dematerialized. Only those holdings that are registered in the name of the account holder can be dematerialized. Names of holders as appearing on the securities should match with the name/s given in for opening of the demat account.
If the same set of joint holders held securities in different sequence of names, these joint holders by using ‘Transposition cum Demat facility’ can dematerialize the securities in the same account even though share certificates are in different sequence of names. A client may, in the normal course, receive demat confirmation in about 30 days from the date of submission of demat request to the DP. There are special processes for securities issued by Government of India and simultaneous transmission and Demat.
ransfer of securities
Transfer of Security from one account to other account can be carried out smoothly by means filling and submitting the Delivery Instruction Slips. Go through the guidelines,which are elaborative.
Guidelines:”Do’s & Don’ts”:
Instruction slip, which is known as DIS, is nothing else but another form of cheque. But it differs in certain characteristics like a. cheque is being reported in terms of Rupees whereas DIS it is being reported as ISIN and no, of shares/units, b. In case of cheque, if joint account operated by E (Either) or S(Survivor), any one can sign but in case of DIS of Demat Account, all the client have to sign jointly, i.e., no E or S is applicable.
Ensure that instruction slips are properly filled in and signed by ALL the joint-holders of the account, submitted to DP against acknowledgement on the client€™s copy. Ensure that instruction slips are submitted well within the time for timely execution. (i) Market transactions to be submitted before 4.00 p.m. on the day prior to Pay-in (ii) In case of on market transaction received after 4.00 p.m. for next day pay-in., it will be accepted and processed at client€™s risk & responsibility. (iii) In case of off market
transaction, ensure the execution date is of the next day of submission. (iv) If you desire to submit the off-market transaction with same date of execution, as per extant guidelines, instructions are to be carried out at client’s risk & responsibility. In case of off market transfers, please arrange to fill up the reason for such transfer and the consideration. Ensure blank column are cancelled.
Please do not keep DIS sign blank and leave with your DP or any other entity including broker. It means, keep the same under safe custody. In case of lost / stolen / misplaced of DIS booklet, inform DP in writing duly signed by all the joint-holders to stop transfer. In case you need a fresh / new booklet, please submit request in the form provided in the existing booklet duly signed by joint-holders Inter-Depository Transfer:
It is basically transfer of securities between two demat accounts held across depositories, i.e., from NSDL to CDSL & vice-versa.
You can avail loan against your Shares which are in yourDemat Account. A BO can, not only pledge his demat securities, but, may also be able to obtain higher loan amounts, with reduced margins & lower rate of interest. Moreover, procedure for pledging securities in demat form is very convenient for both pledger and pledgee. Pledge of securities in NSDL depository requires that both the borrower (pledger) and the lender (pledgee) should have account in NSDL depository. Transactions go through the following procedures:
Create Pledge/hypothecation Confirm the creation of Pledge/hypothecation Close the Pledge/hypothecation Confirm the closure of Pledge/hypothecation Invoke the Pledge/hypothecation Confirm the invocation of hypothecation Unilateral closure of Pledge/hypothecation
You can avail this facility when you desire that your account should either be debited or credited or both for a certain stipulated time frame. You can do so by simlpy filling up the form meant for the purpose. No transaction will take place during the prescribed period. Similarly you can also request for defreeze of account when you desire to do so.
ransmission of Securities
In the event of the death of any one or more of the joint holder(s), the surviving joint holder(s) can get the name(s) of the deceased deleted from the physical certificate(s) and simultaneously get the securities dematerialized by following the procedure mentioned below: The surviving joint holder(s) shall open an account in the same order and pattern as appearing on the certificates (except the name of the deceased).e.g:In case of joint holdings of Mr. A,Mr. B & Mr. C,in the event of death of Mr. A,the account should be opened in the name of Mr. B as the first holder and Mr. C as the second holder. The dematerialization request in the prescribed form along with the security certificates as per the usual procedure.
As a client, you will submit a “Form for transmission along with dematerialization”. The depository participant shall execute the dematerialization request in the account of the survivor(s) and forward the dematerialization request form, security certificates, a copy of the form for transmission along with dematerialization and a copy of death certificate, duly notarized to the issuer or its R&T Agent. On being satisfied with the document received, the issuer or its R&T Agent shall carry out the name deletion and then process the dematerialization request, as per the prescribed procedure.
Rematerialisation is the process by which a client can get his electronic holdings converted into physical certificates. A client can rematerialise his dematerialised holdings at any point of time. The rematerialisation process is completed within 30 days.
The securities sent for rematerialisation cannot be traded.
In India, a demat account, is similar to banking account which transfers paper based physical shares into electronic form (dematerialized). This dematerialized account is used to avoid holding physical shares. It is safe, secure and convenient way to hold securities. Demat account is just like your savings or current Bank A/c. At SIHL, we provide demat accounts through two central facilities. NSDL (National Securities Depository Ltd) and CSDL (Central Depository Services (India) Limited). We are members of both the depositories.
Financial Institutions, banks, custodians and stockbrokers complying with the requirements prescribed by Securities & Exchange Board of India (SEBI) can be registered as a Depository Participant (DP).
A safe and convenient way to hold securities in electronic form. Demat Holding Facility through Online and Phone.
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 sold
Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspondence 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 Remat Facility will allow you to convert your electronic shares in to Physical Shares