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Investment product group:

Next investment option available is equity shares. For which holding a demat account is

necessary.

Demat account:

In India, a demat account, the abbreviation for dematerialized account, is a type of banking

account which dematerializes paper-based physical stock shares. The dematerialized account is

used to avoid holding physical shares: the shares are bought and sold through a stock broker.

The Securities and Exchange Board of India (SEBI) mandates a demat account for share

trading above 500 shares. As of April 2006, it became mandatory that any person holding a

demat account should possess a Permanent Account Number (PAN).

What is the difference between a depository and a depository participant?

A depository is a place where the stocks of investors are held in electronic form. The depository

has agents who are called depository participants (DPs). A DP is typically a financial

organization like a bank, broker, financial institution, or custodian acting as an agent of the

depository to make its services available to the investors. Think of it like a bank. The head office

where all the technology rests and details of all accounts held is like the depository. The DPs are

the branches that cater to individuals. There are only two depositories in India -- the National

Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL).

Benefits:

- A safe and convenient way to hold securities;

- Immediate transfer of securities;

- No stamp duty on transfer of securities;

- Elimination of risks associated with physical certificates such as bad delivery, fake securities,delays, thefts etc.;

- Reduction in paperwork involved in transfer of securities;

- Reduction in transaction cost;

- No odd lot problem, even one share can be sold;

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- Change in address recorded with DP gets registered with all companies in which investor holds

securities electronically eliminating the need to correspond with each of them separately;

- Transmission of securities is done by DP eliminating correspondence with companies;

- 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.

Benefit to the company

The depository system helps in reducing the cost of new issues due to lower printing and

distribution costs. It increases the efficiency of the registrars and transfer agents and the

secretarial department of a company. It provides better facilities for communication and timely

service to shareholders and investors.

Benefit to the investor

The depository system reduces risks involved in holding physical certificates, e.g., loss, theft,

mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares.

It ensures faster communication to investors. It helps avoid bad delivery problems due to

signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on

transfer of shares. It provides more acceptability and liquidity of securities.

Benefits to brokers

It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of

trading. It eliminates chances of forgery or bad delivery. It increases overall trading

and profitability . It increases confidence in their investors.

Bank Account Vs Demat Account

S.

No.

Basis Of

DifferentiationBank Account Demat Account

1. Form of

Holdings/Deposits Funds Securities

2. Used for Safekeeping of money Safekeeping of shares

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3. Facilitates

Transfer of money

(without actually

handling money)

Transfer of shares

(without actually

handling shares)

4. Where to open A bank of choice A DP of choice (can be a bank)

5. Requirement of

PAN Number Not Mandatory

Mandatory (effective

from April 01, 2006)

6. Interest accrual on

holdings

Interest income is

subject to the applicable

rate of interest

No interest accruals on

securities held in demat

account

7. Minimum balance

requirement

Balance maintenance is

specified for certain

bank accounts

No such requirement

Similarities:

S. No.

BASIS OF

SIMILARITY PARTICULARS

1. Security and

Convenience

Both are very safe and convenient means of

holding deposits/securities

2. Number of accounts No legal barrier on the number of bank or

demat accounts that can be opened

3. Transfer of deposits

(funds or securities)

Funds/securities are transferred only at the

instruction of the account holder

4. Physical transfer of

money/securities

Physical transfer of money/securities is not

involved