final demat project
TRANSCRIPT
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Innovations in banking and
insurance
Dematerialization service
Presented by:
Jyothsna ail (01)Jinal joshi (16)
Pallavi venkatesh (32)
Assigned by:
Mrs. Arthi kalyanaraman.
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Vision of Banks in India
The banking scenario in India has already gained all the
momentum, with the domestic and international banks
gathering pace. The focus of all banks in India has shifted
their approach to 'cost', determined by revenue minus
profit. This means that all the resources should be used
efficiently to better the productivity and ensure a win-win
situation. To survive in the long run, it is essential to
focus on cost saving. Previously, banks focused on the
'revenue' model which is equal to cost plus profit. Post
the banking reforms, banks shifted their approach to the
'profit' model, which meant that banks aimed at higher
profit maximization.
Focus of banks in India
The banking industry is slated for growth in future with a
more qualitative rather than quantitative approach. The
total assets of all scheduled commercial banks by end-
March 2010 is projected to touch Rs 40,90,000 crore. This
is going to comprise around 65% of GDP at current
market prices as compared to 67% in 2002-03. The
bank's assets are estimated to grow at an annual
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composite rate of growth of 13.4% during the rest of the
decade as against 16.7% between 1994-95 and 2002-03.
Barring the asset side, on the liability perspective, therewill be huge additions to the capital base and reserves.
People will rely more on borrowed funds, pace of deposit
growth slowing down side by side. However, advances
and investments would not see a healthy growth rate.
Future challenges of Banks in
India
The Indian banks are hopeful of becoming a global brand
as they are the major source of financial sector revenueand profit growth. The financial services penetration in
India continues to be healthy, thus the banking industry is
also not far behind. As a result of this, the profit for the
Indian banking industry will surely surge ahead. The profit
pool of the Indian banking industry is probable to
augment from US$ 4.8 billion in 2005 to US$ 20 billion in
2010 and further to US$ 40 billion by 2015. This growth
and expansion pace would be driven by the chunk of
middle class population. The increase in the number of
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private banks, the domestic credit market of India is
estimated to grow from US$ 0.4 trillion in 2004 to US$ 23
trillion by 2050. Third largest banking hub of the globe by
2040 - is that vision too far away?
Definition
Demat account is a safe and convenient means of holding
securities just like a bank account is for funds. Today,
practically 99.9% settlement (of shares) takes place on
demat mode only. Thus, it is advisable to have a
Beneficiary Owner (BO) account to trade at the
exchanges.
Meaning of Dematerialization
Dematerialization is a process by which physical
certificates of an investor are converted into electronic
form and credited to the account of the depository
participant. Dematted securities do not have any
certificate numbers or distinctive numbers and are dealtonly in quantity, i.e., the securities are replaceable.
Investors can dematerialize only those certificates that
are already registered in their names and are in the list of
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securities admitted for dematerialization. These are:
shares, scripts, stocks, bonds, debentures, stock or other
marketable securities of a like nature in or of any
incorporated company or other body corporate, units of
mutual funds, rights under collective investment schemes
and venture capital funds, commercial paper, certificate
of deposit, securities debt, money market instruments
and unlisted securities, underlying sharing of American
Depository Receipts and Global Depository Receipts
issued to non-resident holders. Dematerialization is the
process of converting physical holdings into electronic
form with the depository wherein the share certificates
are shredded and corresponding entry of the number of
shares is done in the opened with the depository.
The securities held in dematerialized form are fungible;
that is, they do not bear any notable feature like
distinctive number, folio number or certificate number.
Once shares get dematerialized, they lose their identity in
terms of share certificate distinctive numbers and folio
numbers.
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Object Of Demat System
India has adopted this system in which book entry is done
electronically. It is the system where no paper is involved.
Physical form is extinguished and shares or securities are
held in electronic mode. Before the introduction of the
depository system by the Depository Act, 1996, the
process of sale, purchase and transfer of shares was a
huge problem and the safety perspective was zero.
Demat Options
Banks score over others Around 200 depository
participants (DPs) offer the demat account facility. Acomparison of the fees charged by different DPs is
detailed below. But there are three distinct advantages of
having a demat account with a bank quick processing,
accessibility and online transaction. Generally, banks
credit your demat account with shares in case of
purchase, or credit your savings accounts 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
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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. So, you can check on
your holdings, transactions and status of requests
through the net banking facility. A broker who acts as a
DP may not be able to provide these services.
Bank Account Vs Demat
Account
Bank Account Vs Demat Account (*AQB - Average Quarterly Balance)
S.
No.Basis Of Differentiation Bank Account Demat Account
1.Form of
Holdings/DepositsFunds Securities
2. Used for Safekeeping of money Safekeeping of shares
3. Facilitates Transfer of money Transfer of shares
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(without actually handling
money)
(without actually handling
shares)
4. Where to open A bank of choiceA DP of choice (can be a
bank)
5.Requirement of PAN
NumberNot Mandatory
Mandatory (effective from
April 01, 2006)
6.Interest accrual on
holdings
Interest income is subject
to the applicable rate of
interest
No interest accruals on
securities held in demat
account
7.Minimum balance
requirement
AQB* maintenance is
specified for certain bank
accounts
No such requirement
8.Either or Survivor
facility
Available Not available
S.
No.BASIS OF SIMILARITY PARTICULARS
1. Security and ConvenienceBoth are very safe and convenient means of
holding deposits/securities
2. Number of accountsNo legal barrier on the number of bank or
demat accounts that can be opened
3.Transfer of deposits
(funds or securities)
Funds/securities are transferred only at the
instruction of the account holder
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4.Physical transfer of
money/securities
Physical transfer of money/securities is not
involved
5. Nomination Facility Available
Fees Involved
There are four major charges usually levied on a demat
account: Account opening fee, annual maintenance fee,
custodian fee and transaction fee. All the charges varyfrom DP to DP.
Account-opening fee
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Depending on the DP, there may or may not be an
opening account fee. Private Banks, such as HDFC
Bank and UTI Bank, do not have one. However,
players such as ICICI Bank, Globe Capital, Karvy
Consultants and the State Bank of India to do so. But
most players levy this when you re-open a demat
account, though the Stock Holding Corporation offers
a lifetime account opening fee, which allows you to
hold on to your demat account over a long period.
This fee is refundable.
Annual maintenance fee
This is also known as folio maintenance charges, and
is generally levied in advance.
Custodian fee
This fee is charged monthly and depends on the
number of securities (international securities
identification numbers ISIN) held in the account. It
generally ranges between Rs 0.5 to Rs 1 per ISIN permonth. DPs will not charge custody fee for ISIN on
which the companies have paid one-time custody
charges to the depository.
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Transaction fee
The transaction fee is charged for crediting/debiting
securities to and from the account on a monthlybasis. While some DPs, such as SBI, charge a flat fee
per transaction, HDFC Bank and ICICI Bank peg the
fee to the transaction value, 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. The DPs also charge if your 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 and remat requests. For demat, 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 charges Rs
25 as the request fee and Rs 3 per certificate as the
variable fee. However, SBI charges only the variable
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fee, which is 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 which 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 you also hold a savings account with the
DP you can provide a debit authorization to the DP
for paying this charge. Finally, once you choose your
DP, it will be prudent to keep all your accounts with
that DP, so that tracking your capital gains liability is
easier. This is because, for 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.
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The computation of capital gains is done account-
wise.
Opening a Demat Account
To start dealing in securities in electronic form, one needs
to open a demat account with a DP of his choice. An
investor already having shares in physical form should
ensure that he gets the account opened in the same set
of names as appearing on the share certificate; otherwise
a new account can be opened in any desired pattern bythe investor.
Getting started
Choose a DP
Fill up an account opening form provided by DP, and
sign an agreement with DP in a standard format
prescribed by the depository.
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DP provides the investor with a copy of the agreement
and schedule of charges for his future reference.
DP opens the account and provides the investor with aunique account number, also known as Beneficiary
Owner Identification Number (BO ID).
Documents to be attached
Passport size photographs
Proof of residence (POR) - Any one of Photo Ration
Card with DOB / Photo Driving License with DOB /
Passport copy / Electricity bill / Telephone bill
Proof of identity (POI) - Any one of Passport copy /
Photo Driving License with DOB / Voters ID Card /
PAN Card / Photo Ration Card with DOB
PAN card
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DEMATERIALISATION Process
An investor having securities in physical form must get
them dematerialized, if he intends to sell them. This
requires the investor to fill a Demat Request Form (DRF)
which is available with every DP and submit the same
along with the physical certificates. Every security has an
ISIN (International Securities Identification Number). If
there is more than one security than the equal number of
DRFs has to be filled in. The whole process goes on in the
following manner:
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RematerialisationThe process of getting the securities in an electronic
form, converted back into the physical form is known as
Rematerialisation. An investor can rematerialize his
shares by filling in a Remat Request Form (RRF). The
whole process goes on as follows:
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Note:
1. Depository - An organization that facilitates holding
of securities in the electronic form and enables
DPs to provide services to investors relating to
transaction in securities. There are two depositories
in India, namely NSDL and CDSL. As per a SEBI
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guideline, the minimum net worth stipulated for a
depository is Rs.100 crore.
2. NSDL/CDSL - The securities are held in depository
accounts, like the funds are held in bank accounts.
There are two depositories in India namely NSDL and
CDSL. NSDL (National Securities Depository limited)
was established in August 1996 and is the first
depository in India. CDSL (Central Depository
Securities Limited) is the other depository and was
established in 1999.
3. DP (Depository Participant) - A Depository Participant
can be a financial organization like banks, brokers,
financial institutions, custodians, etc., acting as an
agent of the Depository to make its services
available to the investors. There are a total of 538
DPs registered with SEBI, as on March 31, 2006 and
each DP is assigned a unique identification number
known as DP-ID.
Transfer of Shares betweenDPs
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To transfer shares, we need to fill the Depository
Instruction Slip Book (DIS). Firstly we need to check,
whether both Demat account's Depository Participant is
same or not (CDSL or NSDL) If both of them are different,
then we need an INTER Depository Slip (Inter DIS). If they
are same, then we need INTRA Depository Slip (Intra DIS).
1.For example: If we have one Demat account with
CDSL and other Demat account with NSDL, then we
need an Inter DIS.
2.Generally, brokers issue Intra DIS, so do check with
broker.
3.Once we identify the correct DIS, fill the relevant
information like
4. scrip name INE number quantity in words and
figures
5. And submit that DIS for the transfer to the broker
with signatures. The transferor broker shall accept
that DIS in duplicate and acknowledge receipt of
DIS on duplicate copy.
6. Do try to submit that DIS when market is on.
Accordingly, date of submission of DIS and date of
execution of DIS can be same or a difference of one
day is also acceptable.
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7.For transfer, you shall also pay the broker some
charges.
8. Remember: DIS is almost like a cheque book.
Accordingly, it can be misused if issued blank.
Benefits Of Demat Account
A safe and convenient way of holding securities (equity
and debt instruments both).
Transactions involving physical securities are costlier
than those involving dematerialised securities (just like
the transactions through a bank teller are costlier than
ATM transactions). Therefore, charges applicable to an
investor are lesser for each transaction.
Securities can be transferred at an instructionimmediately.
Increased liquidity, as securities can be sold at any
time during the trading hours (between 9:55 AM to
3:30 PM on all working days), and payment can be
received in a very short period of time.
No stamp duty charges.
Risks like forgery, thefts, bad delivery, delays in
transfer etc, associated with physical certificates, are
eliminated.
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Pledging of securities in a short period of time.
Reduced paper work and transaction cost.
Odd-lot shares can also be traded (can be even 1
share).
Nomination facility available.
Any change in address or bank account details can be
electronically intimated to all companies in which
investor holds any securities, without having to inform
each of them separately.
Securities are transferred by the DP itself, so no need
to correspond with the companies.
Shares arising out of bonus, split, consolidation, merger
etc. are automatically credited into the demat account
of the investor.
Shares allotted in public issues are directly credited
into demat account of the applicants in quick time.
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The disadvantages of demat
account:
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 toinvestors. The role of key market players in case of
dematerialized securities, such as stock-brokers, needs to
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be supervised as they have the capability of manipulating
the market.
1. Multiple regulatory frameworks have to be confirmed
to, including the Depositories Act, Regulations and the
various Bye Laws of various depositories. Additionally,
agreements are entered at various levels in the process
of dematerialization. These may cause anxiety to the
investor desirous of simplicity in terms of transactions in
dematerialized securities.
2. However, the advantages of dematerialization
outweigh its disadvantages and the changes ushered in
by SEBI and the Central Government in terms of
compulsory dematerialization of securities is important
for developing the securities market to a degree of
advancement. Freely traded securities are an essential
component of such an advanced market and
dematerialization addresses such issues and is a step
towards the advancement of the market.
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METHODS OFDATA COLLECTION
In the project work Primary data secondary data (both)
sources of data has been used. We took survey of 13
respondents residing in various areas regarding the
demat service popularity and expectation of the
consumer from the online trading service provider. The
details about the respondents and their individual views
are stated in the sample questionnaire sheets.
Primary data collection: In dealing with real life
problem it is often found that data at hand are
inadequate, and hence, it becomes necessary to collect
data that is appropriate. There are several ways of
collecting the appropriate data which differ considerablyin context of money costs, time and other resources at
the disposal of the researcher. Primary data can be
collected either through experiment or through survey.
The data collection for this study was done in the
following manner:
Through questionnaire:- Information to find out the
investment potential and goal was found out through
questionnaire.
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Secondary sources of data: In the secondary sources
of data is used. (Internet)
Analysis of the survey
conducted
1.In which of the financial instrument do you
invest?
Mutual fund
Bond
Shares
Derivative.
Interpretation:
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This shows that although the mutual funds market
is on the rise yet, the most favoured investment
continues to be in the Share Market. So, with a
more transparent system, investment in the StockMarket can definitely be increased.
2.Are you aware of online share trading?
Yes
No
Interpretation:
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With the increase in cyber education, the
awareness towards online share trading has
increased by leaps and bounds.
3. Which Brokerage Company or bank service you
use?
Interpretation:
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Majority of the respondents prefer angel broking
service and there is also demand for local broking
companies.
4.What are the services offered in your demat
account?
Interpretation:
Some of the common services offered by the
customers Demat account are:
Online trading
SMS on each transaction
Up to date information regarding the status
of the account
Providing with monthly statement.
Quotation of the share prices.
5.Is the brokerage rate high low or affordable?
High
Low
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Affordable
Interpretation:
Majority of the respondents feel that their service
provider provide them with affordable brokerage
charges.
6.Are you provided with the necessary advice by
the current service provider?
Yes
No
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Interpretation:
This shows that the respondents are provided
with efficient and on time services and are
really satisfied with it.
7. What are your suggestions for the
improvement in the demat service offered by
your service provider?
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Interpretation:
Some of the most common suggestions given
by the customers are:
They should provide proper guidance to
their customers about demat.
They should provide offers and facilities to
their customers to increase their
attractiveness about demat.
Brokerage rate should remain the same or
be reduced.
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LIMITATION of sample survey.
The study is limited to the different schemes available under
the Demat account of respondents
The lack of information sources for the analysis part.
Geographical locations.
Extreme variability in MARKET.
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Conclusion:
From a long-term perspective, demat in India is of
considerable significance. Not only has the general
trading environment improved and quickened, volumes
too have perked up, even in the demat segment. With
demat taking off, there is now scope for an improvement
in the quality of investor services.
As a consequence of dematerialization, the Indian market
is also well prepared for web-based trading though the
quality of telecom infrastructure and inadequacies in the
banking system-stock exchange linkages may cause
delays. Notably, with regard to the thrust towards
paperless trading, the Indian market managed in three
years what took even the US much longer.
With a high degree of dematerialization a reality, the
stage is set for rolling settlements and web-based
trading. Once these are in place, the Indian market will
have moved closer to the standards in advanced
markets, such as the US. And paperless trading may well
be the catalyst for such a rapid advancement.
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Reference
www.businessmapsofindia.com
www.hinduonet.com
www.appuonline.com
www.legalserviceindai.com
www.wapedia.com
sharemarketbasics.com