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Demat Account A Demat account, short for a dematerialized account, dematerializes the paper-form shares into electronic form.Using a single Demat account an investor can make multiple investments in securities from different companies. ADemat account is very similar to a bank account with a cheque book and a pass book to note the buying and sellingof shares. The Depository Participant provides the periodic statements of the transactions.

The investors benefit with the latest trading platform, market analytics, stock market updates and quotes from theexchanges. The perfect synchronization of technology with updated information helps the investor in staying ahead instock trading.

Demat account is an easy way of online trading

A Demat account holder trades in the share market with ease because of the safety and security of online trading.The process of opening a Demat account includes 4 easy steps:

Approach a certified DP (Depository Participant) registered with the National Securities Depository Ltd. (NSDL) andthe Central Depository Services Ltd. (CSDL). This DP acts as the intermediary between the depositor and the

investor. Fill up the form provided by the DP. Attach the required documents like identity proof and address proof. Produce the original PAN card during account opening.

Opening a demat account is a very simple and convenient process of holding securities. The Depository Participant(DP), registered with National Securities Depository Ltd. (NSDL) and Central Securities Depository Ltd. (CSDL), actsas the intermediary between the depositor and the investor. These DPs are the many stock broking firms, financialintermediaries, banks, sub-brokers etc. who are responsible for holding and transferring securities for the investor. There are just 4 simple steps for demat account opening :

Benefits of Online Trading Account with Demat Account Online trading is a convenient and safe way of trading in the stock market. Electronic maintenance of shares andsecurities eliminated the various problems involved with the physical shares.

Entire capital wont be raised by issuing EquityShare Capital.

External sources of funds may be used.

Its proportion ranges from 40 to 70 percent.

Its found profitable if such funds raised at a lower rate of interest.

Dividend can be paid at higher rate on equityshares, is known as Trading on Equity

Meaning of Trading on Equity

When a co. uses fixed interest bearing capitalalong with owned capital in raising finance, issaid

Trading on Equity. (Owned Capital =Equity Share Capital + Free Reserves )

Trading on equity represents an arrangementunder which a company uses funds carryingfixed interestor dividend in such a way as toincrease the rate of return on equity shares.

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Contd.

It is p ossible to raise the rate of dividend onequity capital only when the rate of interest onfixed interest bearing security is less thanthe rate of return earned in business.

Two other terms:

Trading on Thick Equity :-

When borrowedcapital is less than owned capital

Trading on Thin Equity :-

When borrowedcapital is more than owned capital, it is calledTrading on Equity.

Conditions of success

The rate of interest on borrowed capital must belower than the rate of earnings on owned capital.

If the capit al can be borrowed only on thesecurity of assets, assets of the company willgradually bereduced with every increase inborrowed capital. Trading on equity will weakenthe borrowing capacity of the company.

Trading on Equity can be used onlywhen companys ea rnings are stableand certain .

Limitations

When the rate of interest on borrowed capitalis less than the rate of return being earned bythecompany.

It will reduce the borrowing capacity of the co.as assets are required to place as security.

Income is more or less fixed are able to bear the burden of fixed interest charge.

Low proportion of Fixed Assets, havelimited scope of trading on equity.

Legal restrictions on the amount to beborrowed. e.g. it can be borrowed up tothe total amount of paid

up sharecapital and free reserves only.

The Declining trend of profitability of businessalso limits the use of trading on equity.

Attitude of management restricts the use of trading on equity.

The nature of companys business may alsorestrict the use of trading on equity.

Rate of Dividend = Distributable Profit*100/Equity Share Capital

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