DEMAT ACCOUNT

BY:- Alain, Amit & KashishBCOM(H)

CMR UNIVERSITY

INTRODUCTION

In India shares and securities are held electronically in a dematerialized. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker).

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.

ADVANTAGES OFDEMAT

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. It eliminates risks associated with forgery of signatures.

BENEFITS

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 costs. Cont:->

BENEFITS 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.

BENEFITS TO THE INVERSTORS

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. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.

BENEFITS TO THEBROKERS

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.

OPENING A DEMAT ACCOUNT

Getting in touch with a registered depository: In order to open a demat account, you’ll have to first get in touch with a registered depository participant (DP). For a list of registered DPs, visit the NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited) websites.

Download the Forms: Download or collect the account opening forms from the respective DP’s office or website. Fill up the requested details in the account opening form and provide the necessary signatures. Affix photographs and submit a copy of PAN Card, proof of address, bank statement or other documents as required by the company.

Wait the turn-around Time: It usually takes about a week or two for the welcome kit to reach you depending on different company policies. A Demat account can be opened with zero balance in your account. There is no compulsion to maintain a minimum balance either.

Nominate your Nominee: It is important that you add a nominee while applying for a demat account. Check and double check the nominee details for accuracy. This will enable the nominee to receive the benefits of your securities in the event of exigencies.

Trade: Similarly, when you want to buy shares, inform your broker. The shares that you bought will be credited into your account by the DP. You can also use the trading account linked to your demat account to buy and sell shares online. The DP will provide periodic statements of your transactions.

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 ETC.

FEES INVOLVED

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.

EXAMPLE: To open a demat account in SBI, a One time charge is applicable of Rs. 2500/-. To open a Trading Account it is Rs. 500/-

Reporting Charges on transaction per script: 0.5%

One time approval for PIS: Rs. 750/-

ANNUAL MAINTANENCE FEES

This is also known as folio maintenance charges, and is generally levied in advance. It is charged on annual or monthly basis.

EXAMPLE: IN SBI, The annual maintenance fee is

Rs. 1000/-

TRANSACTION FEES

The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis.

Stock Holding Corporation has charged Rs 25/- as request fee and Rs. 3/- per certificate as variable fees. SBI has charged on the variable fee.

DP(depository participant) also charges fees for converting shares from physical to electronic & vice-versa.

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 dormant accounts.

DOCUMENTS REQUIRED

PAN (Compulsory)

Bank statement (last 3 months)

Address Proof

Income Tax Return

Two color photos

Bank crossed Cheque (If required)

KYC details