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DEMAT

Dematerialization (Demat) is the process by which securities held in physical form evidencing the holding of securities by any person are cancelled and destroyed and the ownership thereof is entered into and retained in a fungible form on a depository by way of electronic balances.

Demat facilitates paperless trading whereby securities transactions are executed electronically reducing / mitigating possibility of loss of related documents and / or fraudulent transactions.

Trading in demat form is regulated by the Depositories Act, 1996 and is monitored by the Securities and Exchange Board of India (SEBI). There are only two depositories presently functioning in India and they are the National Securities Depository Limited (NSDL) & the Central Depository Services (India) Limited (CDSL).

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BASIC SERVICES OFFERED BY DEPOSITORIES :

Under the provisions of the Depositories Act, the National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL) provide various services to investors and other participants in the capital market. This system, which facilitates paperless trading, offers various direct and indirect services to the market participants.

A depository cannot directly open account and provide services to clients. Any person willing to avail of the services of the depository can do so by entering into an agreement with the depository through any of its Depository Participants (DPs).

Depository Participant (DP)

works as an agent of the depository i.e. NSDL & CDSL. The various activities must be carried out as per prescribed procedures, failing which respective depositories impose financial penalties on DPs during audit and inspection. Hence, between the depository and the investors, the relationship care must be taken while carrying out various activities. Depository Participant (DP) is in fact an intermediary between the investor and the depository and is governed by an agreement made between the two (i.e. investor and DP) under the Depositories Act.

CM : This account can be opened by a broker or by a clearing member for the purpose of settlement of trades executed on a recognized stock exchange.

BENEFITS OF DEPOSITORY SYSTEM :

  1. No stamp duty on transfer of shares.
  2. Quick transfers / settlements (the very next day of pay-out).
  3. Elimination of bad deliveries, forgery, loss of certificate in transit etc.
  4. Reduced paper work (no filling of transfer deed, affixation of stamps and lodgment of shares for transfer with the company.
  5. Security of the stocks held as they are held in electronic form and hence no worries of holding the securities physically at home and avoidance of possible loss or theft of the certificate/s; mutilation; forgery etc.
  6. Facility to pledge/ hypothecate the securities.
  7. Facility of trading in Odd lots.
  8. Quick transfer of shares.
  9. Nomination facility available (For individuals)
  10. In case of death of sole / Joint holder/s easy transmission of shares to the nominee or surviving joint holder/s.
  11. Facilitates the Company to determine entitlements like dividends and bonus easily and faster.
 
 

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