Demat refers to a Dematerialised Account.
Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode.
If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application.
It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen.
Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks
So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let’s say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demat account. So you don’t have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.
Is a demat account a must?
Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more.
So a demat account is a must for trading and investing.
Most banks are also DP participants, as are many brokers.
You can choose your very own DP.
A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients.
A DP will just give you an account to hold those shares.
You do not have to take the same DP that your broker takes. You can choose your own.
Demat accounts of investors who failed to furnish their PAN card details were frozen at midnight on Dec 31. Depositories National Securities Depository Ltd and Central Depository Services Ltd have frozen about 20 lakh DEMAT accounts following the failure of the account holders to submit PAN card details before December 31 deadline.
SEBI had made it mandatory for all investors to provide PAN card details for transactions in the cash market from January 1, 2007. However, the freezing of accounts is not an irredeemable event. The accounts can be re-started once the details are provided and verified.
Since January 1, 2007 , more than seven lakh accounts have been unfrozen because the account holders have provided their PAN CARDS to their DPs ( Depository Participants) ?
STEPS to unfreeze your DEMAT ACCOUNT:
- Check your DEMAT ACCOUNT status with your DP or from your transaction statement.
- If your account status is “Suspended for Debit” due to non – submission of PAN details, provide copy of your PAN CARD to your DP with the original for verification.
- Your DP will verify the same and update the PAN CARD details.
- Your DP will then unfreeze your account, after which your account will become operational.
What is a Depository?
A depository is an organisation which holds securities of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.
How is a depository similar to a bank?
It can be compared with a bank, which holds the funds for depositors. A Bank – Depository Analogy is given in the following table:
|Holds funds in an account||Hold securities in an account|
|Facilitates transfer without having to handle money||Facilitates transfer of ownership without having to handle securities|
|Facilitates safekeeping of money||Facilitates safekeeping of securities|
How many Depositories are registered with SEBI?
At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL) are registered with SEBI.
Who is a Depository Participant?
A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI. Banking services can be availed through a branch whereas depository services can be availed through a DP.
What is the minimum net worth required for a depository?
The minimum net worth stipulated by SEBI for a depository is Rs.100 crore.
How many Depository Participants are registered with SEBI?
As on 31/03/2006, total of 538 DPs are registered with SEBI. A list of DP’s and their addresses can be downloaded from SEBI website.
Is it compulsory for every investor to open a depository account to trade in the capital market?
As per the available statistics at BSE and NSE, 99.9% settlement takes place in demat mode only. Therefore, in view of the convenience in settlement through demat mode, it is advisable to have a beneficiary owner (BO) account to trade at the exchanges.
How can services of a depository be availed?
To avail the services of a depository an investor is required to open an account with a depository participant of any depository.
Why should an investor give his bank account details at the time of account opening?
It is for the protection of investor’s interest. The bank account number will be mentioned on the interest or dividend warrant, so that such warrant cannot be encashed by any one else. Further, cash corporate benefits such as dividend, interest will be credited to the investors account directly through the ECS (Electronic Clearing Service) facility, wherever available, by the company.
Can an investor change the details of his bank account?
Yes. Since in the depository system monetary benefits on the security balances are paid as per the bank account details provided by the investor at the time of account opening, the investor must ensure that any subsequent change in bank account details is informed to the DP.
What should be done if the address of the investor changes?
Investor should immediately inform his/her DP, who in turn will update the records. This will obviate the need of informing different companies.
Can multiple accounts be opened?
Yes. An investor can open more than one account in the same name with the same DP and also with different DPs.
Does the investor have to keep any minimum balance of securities in his/her accounts?
Is it necessary to have account with the same DP as broker has?
No. Depository / DP can be chosen by investor as per convenience irrespective of the DP of the broker.
Can an investor open a single account for securities owned in different ownership patterns such as securities owned individually and securities owned jointly with others?
No. The demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in the individual name and another certificate is jointly with somebody, two different accounts would have to be opened.
What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with ‘A’ as first holder and ‘B’ as second holder and other set of certificates with ‘B’ as first holder and ‘A’ as the second holder?
In this case the investor may open only one account with ‘A’ & ‘B’ as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. An additional form called “Transposition cum Demat” form will have to be filled in. This would help you to effect change in the order of names as well as dematerialise the securities.
Can an investor operate a joint account on “either or survivor” basis just like a bank account?
No. The demat account cannot be operated on “either or survivor” basis like the bank account.
Can someone else operate the account on behalf of the BO on the basis of a power of attorney?
Yes. If the BO authorises any person to operate the account by executing a power of attorney and submit it to the DP, that person can operate the account on behalf of the BO.
Can addition or deletion of names of accountholders is permitted after opening the account?
No. The names of the account holders of a BO account cannot be changed. If any change has to be effected by addition or deletion, a new account has to be opened in the desired holding pattern (names) and then transfer the securities to the newly opened account. The old account may be closed.
Can an investor close his demat account with one DP and transfer all securities to another account with another DP?
Yes. The investor can submit account closure request to his DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the demat account.
What would be the charges for account closure and securities transfer due to account closing?
SEBI vide Circular No. MRD/DoP/Dep/Cir-22 /05 dated November 09, 2005 advised that with effect from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e. identical in all respects.
In case the BO Account at transferor DP is a joint account, the BO Account at transferee DP should also be a joint account in the same sequence of ownership.
All other transfer of securities consequent to closure of account, not fulfilling the above-stated criteria, would be treated like any other transaction and charged as per the schedule of charges agreed upon between the BO and the DP.
Whether investors can freeze or lock their accounts?
Investors can freeze or lock their accounts for any given period of time, if so desired. Accounts can be frozen for debits (preventing transfer of securities out of accounts) or for credits (preventing any movements of hindrances into accounts) or for both.
What is dematerialisation?
Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor’s account with his/her DP.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique identification number for a security.
Can odd lot shares be dematerialised?
Yes, odd lot share certificates can also be dematerialised.
Do dematerialised shares have distinctive numbers?
Dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable.
What is ‘Standing Instruction’ given in the account opening form?
In a bank account, credit to the account is given only when a ‘pay in’ slip is submitted together with cash/cheque. Similarly, in a depository account ‘Receipt in’ form has to be submitted to receive securities in the account. However, for the convenience of investors, facility of ‘standing instruction’ is given. If you say ‘Yes’ for standing instruction, you need not submit ‘Receipt in’ slip everytime you buy securities. If you are particular that securities can be credited to your account only with your consent, then do not say ‘yes’ [or tick ] to standing instruction in the application form.
Is it possible to give delivery instructions to the DP over Internet and if yes, how?
Yes. Both NSDL and CDSL have launched this facility for delivering instructions to your DP over Internet, called SPEED-e and EASI respectively. The facility can be used by all registered users after paying the applicable charges.
Is it possible to get securities allotted in public offering directly in the electronic form?
Yes, it is possible to get securities allotted to in Public Offerings directly in the electronic form. In the public issue application form there is a provision to indicate the manner in which an investor wants the securities allotted. He has to mention the BO ID and the name and ID of the DP on the application form. Any allotment made will be credited into the BO account.
How are cash corporate benefit such as dividend / interest received?
The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from Depositories. The payment to the investors will be made by the company through the ECS (Electronic Clearing Service) facility, wherever available. Thus the dividend / interest will be credited to your bank account directly. Where ECS facility is not available dividend / interest will be given by issuing warrants on which your bank account details are printed. The bank account details will be those which you would have mentioned in your account opening form or changed thereafter.
How would one receive non-cash corporate benefit such as bonus etc.?
The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from depositories. The entitlement will be credited by the company directly into the BO account.
Who should be contacted in case of discrepancies in corporate benefits?
In case of discrepancies in corporate benefits, one can approach the company / its R&T Agent.
Can one pledge dematerialised securities?
Yes. In fact, pledging dematerialised securities is easier and more advantageous as compared to pledging physical securities.
What should one do to pledge electronic securities?
The procedure to pledge electronic securities is as follows:
- Both investor (pledgor) as well as the lender (pledgee) must have depository accounts with the same depository;
- Investor has to initiate the pledge by submitting to DP the details of the securities to be pledged in a standard format ;
- The pledgee has to confirm the request through his/her DP;
- Once this is done, securities are pledged.
- All financial transactions between the pledgor and the pledgee are handled as per usual practice outside the depository system.
How can one close the pledge after repayment of loan?
After one has repaid the loan, one can request for a closure of pledge by instructing the DP in a prescribed format. The pledgee on receiving the repayment will instruct his DP accordingly for the closure of the pledge.
Can one change the securities offered in a pledge?
Yes, if the pledgee [lender] agrees, one may change the securities offered in a pledge.
Who would receive the corporate benefits on the pledged securities?
The securities pledged are only blocked in the account of pledgor in favour of the pledgee. The pledgor would continue to receive all the corporate benefits.
How does one know that the DP has updated the account after each transaction?
The DP gives a Transaction Statement periodically, which will detail current balances and various transactions made through the depository account. If so desired, DP may provide the Transaction Statement at intervals shorter than the stipulated ones, probably at a cost.
At what frequency will the investor receive his Transaction Statement from his DP?
DPs have to provide transaction statements to their clients once in a month, if there are transactions and once in a quarter, if there are no transactions.
Moreover, DPs can provide transaction statement in electronic form under digital signature subject to their entering into a legally enforceable arrangement with the BOs to this effect.
What is to be done if there are any discrepancies in transaction statement?
In case of any discrepancy in the transaction statement, one can contact his/her DP. If the discrepancy cannot be resolved at the DP level, one should approach the Depository.
Whom should one contact in case of any investor complaint / problem / query?
In case of any investor complaint / problem / query one may first contact his DP. If DP is unable to solve the complaint / problem / query one should approach concerned depository. If one is not satisfied one may approach SEBI. One may also approach SEBI directly.
What is Lending and Borrowing of Securities?
If any person required to deliver a security in the market does not readily have that security, he can borrow the same from another person who is willing to lend as per the Securities Lending and Borrowing Scheme.
Can lending and borrowing be done directly between two persons?
No. Lending and borrowing has to be done through an ‘Approved Intermediary’ registered with SEBI. The approved intermediary would borrow the securities for further lending to borrowers. Lenders of the securities and borrowers of the securities enter into separate agreements with the approved intermediary for lending and borrowing the securities. Lending and borrowing is effected through the depository system.
Can I lend the securities lying in my account?
Yes. You can lend your securities through Approved Intermediaries registered with SEBI.
How would I lend my demat securities?
You may enter into an agreement with the approved intermediary to be a lender under this scheme. After that, you may lend securities any time by submitting lending instruction to your DP.
How would I get back the securities lent by me?
Intermediary may return the securities at any time or at the end of the agreed period of lending. Intermediary has to repay the securities together with any benefits received during the period of the loan.
How would I receive the corporate benefits which would accrue on these securities during the period of lending?
The benefits will be given to the Intermediary/borrower. However, whenever the securities are being returned / recalled. Intermediary/borrower will return the securities together with benefits received.
Who can nominate?
Nomination can be made only by individuals holding beneficiary accounts either singly or jointly. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate.
Who can be a nominee?
Only an individual can be a nominee. A nominee shall not be a society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder.
What is transmission of demat securities?
Transmission is the process by which securities of a deceased account holder are transferred to the account of his legal heirs / nominee. Process of transmission in case of dematerialised holdings is more convenient as the transmission formalities for all securities held in a demat account can be completed by submitting documents to the DP, whereas in case of physical securities the legal heirs/nominee/surviving joint holder has to independently correspond with each company in which securities are held.
In the event of death of the sole holder, how the successors should claim the securities lying in the demat account?
The claimant should submit to the concerned DP an application Transmission Request Form (TRF) along with the following supporting documents
- In case of death of sole holder where the sole holder has appointed a nominee : Notarised copy of the death certificate
- In case of death of the sole holder, where the sole holder has not appointed a nominee : Notarised copy of the death certificate
Any one of the below mentioned documents
- Succession certificate
- Copy of probated will
- Letter of Administration
The DP, after ensuring that the application is genuine, will transfer securities to the account of the claimant.
The major advantage in case of dematerialised holdings is that the transmission formalities for all securities held with a DP can be completed by interaction with the DP alone, unlike in the case of physical share certificates, where the claimant will have to interact with each Issuing company or its Registrar separately.
If my depository account is with NSDL/CDSL, can I receive my securities from an account holder having account with the other depository in India?
Yes. Inter depository transfers are possible.