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7/27/2019 DEMAT-The Process and Needematd
http://slidepdf.com/reader/full/demat-the-process-and-needematd 1/11
Dematerialization (“Demat” in short form)
signifies conversion of a share certificate from its physical form to electronic form for the same
number of holding which is credited to your demat
account which you open with a Depository
Participant (DP).
7/27/2019 DEMAT-The Process and Needematd
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Indian capital market has seen extraordinary boom inits activity in the last 15 years in terms of number of stock exchanges, listed companies, trade volumes,
market intermediaries, investor population, etc. However, this surge in activity has brought with it
numerous problems that threaten the very survival of the capital markets in the long run, most of which aredue to the large volume of paper work involved and
paper based trading, clearing and settlement.
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The Indian markets were drowned in shares in
the form of paper and hence it was problematic
to handle them
Fake and stolen shares
Fake signatures and signature mismatch
Duplication and damage of shares
Transfer problems
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Depository is an organization where the shares
are held in an electronic form. It also provides
services related to transactions in securities.
There are only two Depositories in India
registered with SEBI. They are
1) National Securities Depository Ltd (NSDL)2) Central Depository Services Ltd (CDSL)
7/27/2019 DEMAT-The Process and Needematd
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A DEPOSITORY PARTICIPANT (DP) is
described as an agent of the depository, they are
the intermediaries between the depository and
the investors. The relationship between the DPs
and the depository is governed by an agreement
made between the two under the DepositoriesAct,1996.
7/27/2019 DEMAT-The Process and Needematd
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NSDL-BANK--ANALOGY
BANK
Holds funds in accounts
Transfers funds between
accounts
Transfers without
handling cash
Safekeeping of money
NSDL
Holds securities in
accounts
Transfers securities between accounts
Transfers without
handling physical
securities
Safekeeping of
securities
7/27/2019 DEMAT-The Process and Needematd
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Present Scenario Past Scenario
Shares held in Electronic form Shares held in Certificate form
Transfer of Shares is done within
3 working days
Lengthy Process i.e. 2 to 3
months
Easy dealing in Shares without
rigid procedure
Complicated procedure for
trading
The depository system reducesrisks involved in holding physical
certificated, e.g., loss, theft,
mutilation, forgery, etc.
Share certificate may sometimeslost in transit, theft etc.
Pan card is mandatory. Pan card was not mandatory.
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A safe and convenient way to hold securities
Elimination of risks associated with physicalcertificates such as bad delivery, fake securities,
delays etc. Immediate transfer of securities
Reduction in paperwork involved in transfer of securities
No stamp duty on transfer of securities
Reduction in transaction cost
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No odd lot problem, even one share can be sold
Nomination facility
Change in address recorded with DP getsregistered with all companies in which investor holds securities electronically eliminating theneed to correspond with each of them separately
Transmission of securities is done by DPeliminating correspondence with companies
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Dematerialization Process
INVESTO
RDP
NSD
L
R & T
AGENT
2
3
4
52
A
1
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Increase in maximum limit of advances.
Faster settlement cycle.
Periodic status reports. It provides more acceptability and liquidity of
securities. Automatic credit into demat account of shares, arising
out of bonus/split/consolidation/merger etc. Holding investments in equity and debt instruments in
a single account.