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1.
What is Demat and what are its benefits?
Dematerialisation ('Demat' in short form) signifies conversion of a share certificate from its present physical form to electronic form
for the same number of holding. It is a direct application of scope provided by the tremendous progress made in the area of Information
Technology whereby voluminous and cumbersome paper work involved in the scrip based system is eliminated. It offers scope for paperless
trading through state-of-the-art technology, whereby share transactions and transfers are processed electronically without involving
any share certificate or transfer deed after the share certificates have been converted from physical form to electronic form.
Transacting the depository way has several benefits over the traditional system of transaction, using share certificates.
The following are some of the benefits:
• Eliminates bad deliveries
• No risk of loss, mutilation or theft of share certificates
• No cost of courier/notarisation/need to follow-up with broker for shares returned due to company objection
• No stamp duty for transfer of shares
• Reduced paper work.
• Shorter settlement cycle
• Low interest rates on loans granted against pledge of dematerialised securities by banks
• Low margin on securities pledged with banks
• Increase in liquidity of your securities because of faster transfer and registration of securities in your account
• Instant disbursement of bonus and rights into account
• Regular account status updates at any point of time
• Information of your holdings in equity at a glance.
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2.
Who can open a demat account ?
Any individual, HUF, corporate or partnership firm can open a demat account. |
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3.
What are the different types of demat accounts ?
There are basically four types of accounts, viz Beneficiary account, Clearing Member account,
Intermediary account and House account. However at Investsmart Online there are only two types of accounts
• Beneficiary account: investors who hold their securities in dematerialised form with a depository open this account. It is used to
settle the transaction of the sale and purchase of such securities in the book entry form.
Clearing Member account: this is a transitory account, which a broker of a clearing member holds for the purpose of settlement of trades.
The securities in this type of account are held only for commercial purpose. The securities received in this account should be
transferred to the respective Beneficiary account as soon as possible
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4. How to open a demat account?
Opening a demat account is similar to opening a bank account. An investor can open a depository account as follows:
• The investor should fill up an account-opening form and submit the documents required to the DP.
• The DP-client agreement should be signed which defines the rights and duties of the DP and the person wishing to open the account.
The investor can start using his demat services on receiving the client account number (Client ID)
Documents required for opening a Client Beneficiary account
A client's depository account can be opened only after due diligence with regard to the identity and address of a client is done.
Documents required to open such an account are:
A) Individual
1) PAN card
2) Proof of identity:(any one)
- Copy of passport
- Voter's ID card
- Driving license/PAN card
3) Proof of address: (any one)
- Copy of passport
- Voter's ID card
- Driving license/PAN card
- Ration card
- Bank passbook/latest bank statement
- Photocopy of telephone or electricity bills.
4) Passport-size photograph signed by the client.
5) Photocopy of cheque leaf of the bank account number mentioned on the form to verify the bank MICR number
Note : In case of a proprietary concern/partnership firm the account has to be opened in the name of the proprietor/partners as an
individual account
B) HUF
For opening HUF accounts, in addition to the documents mentioned above for opening Individual accounts, the following shall be ensured
• No HUF accounts shall be opened with joint holding
The account shall be opened in the name of the karta of the HUF
C) Corporate clients
1) Board resolution on the company's letterhead
2) Director's proof of identity
3) Company identification required (company PAN card)
4) Corresponding address proof
5) Cancelled copy of cheque leaf
6) Memorandum & Articles of Association (MOA & AOA)
7) Clearly mentioned mode of operations.
Note : the company's rubber stamp with the signatures of the authorized signatory is required on all of the above.
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5.
How do I demat my shares?
First, you will have to open an account with a Depository Participant(DP) and get a unique Client ID number. Thereafter, you will have to fill up a Dematerialisation Request Form (DRF) provided by the DP and surrender the physical shares intended to be dematted to the DP. The DP upon receipt of the shares and the DRF, will send an electronic request to the Company / Registrars through the Depository for confirmation of demat. Each request will bear a unique transaction number. The DP will simultaneously surrender the DRF and the shares to the Company/Registrars with a covering letter requesting to confirm the demat. The Company/Registrars after necessary verification of the documents received from the DP and if found in order will confirm demat to the Depository. This confirmation will be passed on from the Depository to the DP, which holds your account. After receiving this confirmation from the Depository, the DP will credit the account with the shares so dematerialised. The DP will hold the shares in the dematerialised form thereafter on your behalf. And you will become beneficial owner of these dematerialised shares.
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6.
What is a depository?
A depository is an organisation where the securities (like shares, debentures, bonds and units) of investors are held in electronic form
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7.
How many depositories are there in India?
At present, India has only two depositories-National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). NSDL promoted by the NSE and IDBI is the first depository to have started in India followed by CDSL promoted by the BSE. Almost all the companies listed in dematerialised form with NSDL are also available with CDSL. Most of the services offered by both these depositories are similar. |
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8.
How does the Depository System operate?
The operations in the Depository System involve the participation of a Depository, Depository Participants, Company/Registrars and Investors. The company is also called the Issuer.
A Depository (NSDL and CDSL) is an organisation like a Central Bank, i.e. Reserve Bank where the securities of an investor are held in electronic form, through Depository participants.
A Depository Participant is the agent of the Depository and is the medium through which the shares are held in the electronic form. They are also the representatives of the investor, providing the link between the investor and the company through the Depository.
To draw analogy, the Depository system functions very much like the banking system. A bank holds funds in accounts whereas, a Depository holds securities in accounts for its clients. A bank transfers funds between accounts whereas, a Depository transfers securities between accounts.
In both systems, the transfer of funds or securities happens without the actual handling of funds or securities. Both the banks and the Depository are accountable for safe keeping of funds and securities respectively. The company has to sign an Agreement with NSDL/CDSL (the depositories) and install the necessary hardware/software for operations.
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9.
Who is a depository participant?
A depository participant (DP) is an agent appointed by a depository authorised to offer depository services to all investors. An investor cannot directly open a demat account with the depository. An investor has to open his account through a DP only. The DP in turn opens the investor account with the depository. The DP takes up the responsibility of maintaining the account and updating it as per the instructions given by the investor. The DP generates and provides the holdings statement from time to time as required by the investor. Thus the DP is basically the interface between the investor and the depository.
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10. Who is a beneficiary owner (BO)?
The person who holds a demat account is a beneficiary owner. In case of a joint account, the account holders will be beneficiary holders of that joint account
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11. How long would it take my account to be credited when I submit my shares for dematerialisation?
Your account will be credited typically in 15 days.
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12. Are there Distinctive Numbers & Certificate Nos. in Demat Shares?
No. Dematerialized shares do not have any distinctive or certificate numbers.The shares are in FUNGIBLE ~ 100 shares of a company are the same as any other 100 in that company.
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13. Why dematerializing, can a sole holder add a Joint Holder?
No. At this point, ownership cannot be transferred from an individual name to a joint name.To do this, you should first open a Depository Account as the sole holder and dematerialize the shares.You should open another Depository Account in the joint names (AB).Now make an off-market transaction from account A to account AB.The DP will charge a nominal amount for this transaction.As an alternate, the certificate can be sent for transfer in the joint names AB and then surrendered for demat with the DP.
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14. Once my shares are dematted, can I ever get them converted into physical shares?
If you are holding shares in electronic form, you still have the option to convert your holding in physical form by submitting a Rematerialisation Request Form (RRF) through your DP in the same manner as Dematerialisation. Upon receipt of such request from your DP, the Company/Registrars will issue share certificate(s) for the number of share(s) so rematerialised
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15. What are the charges to be paid to demat one's physical shares? Will it be paid by the company or do I have to pay for it?
The charges for demat have to be borne by the shareholder. The charges differ from DP to DP and therefore you will have to choose your DP for the same.
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16. Once my shares are dematted, can I ever get them converted into physical shares?
If you are holding shares in electronic form, you still have the option to convert your holding in physical form by submitting a Rematerialisation Request Form (RRF) through your DP in the same manner as Dematerialisation. Upon receipt of such request from your DP, the Company/Registrars will issue share certificate(s) for the number of share(s) so rematerialised
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17. I have purchased some shares in paper form. Can I directly give the share certificate(s) to my Depository Participant for dematting them in my favour?
Prior to dematting your shares, they have to be registered in your favour. Hence, you have to necessarily lodge the share certificates with a duly executed transfer deed for registration of shares in your favour which can be subsequently dematerialized.
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18. Is it a fact that the shares are to be traded compulsorily in Demat Form? Do I have the option of holding them in physical form?
Yes. the shares of most companies are to be compulsorily traded in demat form.However you can still buy shares in physical form upto 500 (through odd lot window facility provided by the Mumbai Stock Exchange) and send the same for transfer. After the transfer is registered in your favour,the share certificates in physical form will be forwarded to you.
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19. How do I get my dividends on dematted shares? Will I get the Annual Report after I demat my shares and would I be able to attend the AGM
The Depositories (NSDL/CDSL) will provide the list of demat account holders and the number of shares held by them in electronic form on the Record date to the company /registrar (known as Benpos). On the basis of Benpos, the company concerned will issue dividend warrants in favour of the demat account holders. The rights of the shareholders holding shares in demat form are at par with the holders in physical form. Hence you will be eligible to get the Annual Report and will have the right to attend the AGM as a shareholder.
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20. What are the chances of any fraud/disputes in using a demat account? Whom should I approach in such cases?
Common risk factors applicable to trading in physical shares like mismatch in signatures, loss in postal transit, etc., are absent since the dematted shares are traded scrip less. However, in the unlikely event of any other dispute, the concerned Stock Exchange and/or Depository Custodian viz. NSDL/CSDL or SEBI would have to be approached for resolving such issues.
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21. What are the various reasons for Rejections in Demat?
Fake Certificate, Signature difference, Third Party Claim, Court Cases are the reasons as to why a demat request is rejected by R&T Agent
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22. Can I pledge my shares in demat form for the purpose of availing any funding/loan arrangement with my bankers
Yes. You will have to contact your DP for this.
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23. Who can avail of the nomination facility?
As in case of any other bank account nomination can be done in case of the demat account also. The nomination facility is provided only to individual demat accounts and not to non-individuals like society, trust, corporate body, partnership firm, karta of Hindu United Family (HUF) or a minor. Nomination is permitted for joint holders also.
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24. What is transmission?
Transmission of securities arises as a result of the death of a sole or anyone of the joint demat account holders; the shares lying in the demat account under beneficiary balance are transferred to the demat account of the surviving members.
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25. What is meant by the pledge of securities?
Beneficiary account holder who does not wish to sell his/her shares, but is willing to avail an advance against dematerialized shares, can take a loan by marking pledge/lien against those shares. There are always two parties involved in a pledge--the pledgor (borrower) and the pledgee (lender).
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26. What is meant by rematerialization?
Rematerializing is a process by which the electronic holding of shares is converted into physical form.
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