project of karvy on demat

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introduction

A widely neither distributed nor such distress followed so quickly on the heels 1the

equity brokerage industry in India is one of the oldest in the Asia region. India had anactive stock market for about 150 years that played a significant role in developing risk

markets as also promoting enterprise and supporting the growth of industry. The roots ofa stock market in India began in the 1860s during the American Civil War that led to asudden surge in the demand for cotton from India resulting in setting up of a number of

joint stock companies that issued securities to raise finance. This trend was akin to the

rapid growth of securities markets in Europe and the North America in the background of

expansion of railroads and exploration of natural resources and land development.

Historical records show that as early as 1864, there were about 1,000 brokers with the

stock markets functioning from three places in Mumbai; between 9 am to 7 pm at the

junction of Meadows Street and Rampart Row, from day break till 9 am and from 7 pm toearly hours of next morning at Bazargate. Share prices rose sharply even at that time. A

share of Colaba Land Company during the boom period of the 1860s rose from Rs 10,000at par to Rs 120,000 and that of Backbay Shares went up from Rs 2,000 to Rs 54,000.

Bombay, at that time, was a major financial centre having housed 31 banks, 20 insurancecompanies and 62 joint stock companies.

Reports on stock markets around that time indicate that an ordinary broker in 1864 earned

about Rs 200 per day, a huge sum in those days. The boom period came to an abrupt end

in 1865. In Jul 1865, what was then used to be called the share mania ended with burst ofthe stock market bubble? Never had I witnessed in any place a run s of such prosperity

thus wrote Richard Temple, who served as the Governor of Bombay at that time. An

interesting aspect is that despite the collapse of the stock market, most of the brokers met

their payment commitments. In the aftermath of the crash, banks, on whose building stepsshare brokers used to gather to seek stock tips and share news, disallowed them to gather

there, thus forcing them to find a place of their own, which later turned into the DalalStreet. A group of about 300 brokers formed the stock exchange in Jul 1875, which led to

the formation of a trust in 1887 known as the Native Share and Stock Brokers

Association. A unique feature of the stock market development in India was that that itwas entirely driven by local enterprise, unlike the banks which during the pre-

independence period were owned and run by the British. Following the establishment of

the first stock exchange in Mumbai, other stock exchanges came into being in major

cities in India, namely Ahmedabad (1894), Calcutta (1908), Madras (1937), UttarPradesh and Nagpur (1940) and Hyderabad (1944). The stock markets gained from surge

and boom in several industries such as jute (1870s), tea (1880s and 1890s), coal (1904and 1908) etc, at different points of time.

Beginning of a new equity culture

A new phase in the Indian stock markets began in the 1970s, with the introduction of

Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the

multinational companies, which created a surge in retail investing. The early 1980s
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witnessed another surge in stock markets when major companies such as Reliance

accessed equity markets for resource mobilisation that evinced huge interest from retail

investors. A new set of economic and financial sector reforms that began in the early1990s gave further impetus to the growth of the stock markets in India. As a part of the

reform process, it became imperative to strengthen the role of the capital markets that

could play an important role in efficient mobilisation and allocation of financial resourcesto the real economy. Towards this end, several measures were taken to streamline the

processes and systems including setting up an efficient market infrastructure to enable

Indian finance to grow further and mature. The importance of an efficient micro marketinfrastructure came into focus following the incidence of market abuses in securities and

banking markets in 1991 and 2001 that led to extensive investigations by two respective

Joint Parliamentary Committees. The Securities and Exchange Board of India (SEBI),

which was set up in 1988 as an administrative arrangement, was given statutory powerswith the enactment of the SEBI Act, 1992. The broad objectives of the SEBI include

to protect the interests of the investors in securities

to promote the development of securities markets and to regulate the securities

markets

The scope and functioning of the SEBI has greatly expanded with the rapid growth ofsecurities markets in India in the last fifteen years. Following the recommendations of the

High Powered Study Group on Establishment of New Stock Exchanges, the National

Stock Exchange of India (NSE) was promoted by financial institutions with an aim toprovide access to investors all over the country. NSE was incorporated in Nov 1992 as a

tax paying company, the first of such stock exchanges in India, since stock exchanges

earlier were trusts, being run on no-profit basis. NSE was recognized as a stock exchange

under the Securities Contracts (Regulations) Act 1956 in Apr 1993.

It commenced operations in wholesale debt segment in Jun 1994 and capital market

segment (equities) in Nov 1994. The setting up of the National Stock Exchange brought

to Indian capital markets several innovations and modern practices and procedures suchas nationwide trading network, electronic trading, greater transparency in price discovery

and process driven operations that had significant bearing on further growth of the stock

markets in India. Faster and efficient securities settlement system is an importantingredient of a successful stock market. To speed the securities settlement process, The

Depositories Act 1996 was passed that allowed for dematerialisation (and

rematerialisation) of securities in depositories and the transfer of securities through

electronic book entry. The National Securities Depository Limited (NSDL) set up byleading financial institutions, commenced operations in Oct 1996. Regulations governing

selection of various types of market intermediaries as depository participations were

made. Subsequently, Central Depository Services (India) Limited promoted by BombayStock Exchange and other financial institutions came into being.

Rapid Growth


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The last decade has been exceptionally good for the stock markets in India. In the back of

wide ranging reforms in regulation and market practice as also the growing participation

of foreign institutional investment, stock markets in India have showed phenomenalgrowth in the early 1990s. The stock market capitalization in mid-2007 is nearly the same

size as that of the gross domestic product as compared to about 25 percent of the latter in

the early 2000s. Investor base continued to grow from domestic and internationalmarkets. The value of share trading witnessed a sharp jump too. Foreign institutional

investment in Indian stock markets showed continuous rise reaching about USD10 bn in

each of these years between FY04 to FY06. Stock markets became intensely technologyand process driven, giving little scope for manual intervention that has been the source of

market abuse in the past. Electronic trading, digital certification, straight through

processing, electronic contract notes, online broking have emerged as major trends in

technology. Risk management became robust reducing the recurrence of paymentdefaults. Product expansion took place in a speedy manner. Indian equity markets now

offer, in addition to trading in equities, opportunities in trading of derivatives in futures

and options in index and stocks. ETFs are showing gradual growth. Within five years of

introduction of derivatives, Indian stock markets now are ranked first in stock futures andfourth in index futures. Indian stock markets are transaction intensive and thus rank

among the top five markets in this regard. Stock exchange reforms brought inprofessional management separating conflicts of interest between brokers as owners of

the exchanges and traders/dealers. The demutualization and corporatisation of all stock

exchanges is nearing completion and the boards of the stock exchanges now have

majority of independent directors. Foreign institutions took stake in Indias two leadingdomestic stock exchanges. While NYSE Group led consortium took stake in the National

Stock Exchange, Deutsche Borse andSingapore Stock Exchange bought equity in the

Bombay Stock Exchange Ltd. The smooth functioning of all these activities facilitateseconomic growth in that lower costs and enterprise risks promote the production of goods

and services as well as employment.

Sources of Data:

For completing the project primary and secondary data used. By way of collectingsecondary I used books, journals, news paper and magazine. The main aims of this study

are as follows.

Objectives of the study:

1. To study and analyse the process of Dematerialisation and Investors opinion

towards Demat Processing.

2. To know and explain procedure for opening of Demat account and process of

dematerialization of securities to eliminate the problem related with physical holdings of

securities.

3. To explain the advantages of Dematerialisation of securities, convince and makethem to dematerialize their securities.
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KARVY COMPUTERSHARE PRIVATE LIMITED operates in five continents,

providing services and solutions to listed companies, investors, employees, exchanges

and other financial institutions and also registrar for IPOs.

KARVY THE FINAPOLIS is a big distributor of equity and financial product and

provides planning and advisory services to the mass affluent.

KARVY GLOBAL SERVICES LIMITED deals with the specialist Business Process

Outsourcing.

KARVY REALTY & SERVICES (INDIA) LIMITED is engaged in business of realestate and property services offering value added property services and offers individuals

and establishments a myriad of options across investments, financing and advisory

services in the realty sector.

In spite of all this KARVY has its RESERCH CENTER in Hyderabad and also a member

of Hyderabad Stock exchange. It is also a member of National Stock Exchange andBombay Stock Exchange.

ACHIVEMENTS:-

Largest independent distributor for financial products

Amongst the top 5 stock brokers in India.

Largest network of branches and business associates

Amongst top 10 investment Bankers..

ISO 9002 certified operation by DNV.

Indias No. 1 Registrar and Transfer Agent.

Ranks among top 5 Depository Participant in India.

MISSION OF KARVY:-

To be a leading, preferred service provider to our customer, and to achieve this

leadership position by building an innovative, enterprising, and technology driven

organization which will set the highest standards of service and business ethics.


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STOCK BROKING SERVICES:-

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high

success rate as a wealth management and wealth accumulation option. The differencebetween unpredictability and a safety anchor in the market is provided by in-depth

knowledge of market functioning and changing trends, planning with foresight andchoosing one's options with care. This is what it provides in their Stock Broking services.

Karvy Stock Broking Ltd. offer services that are beyond just a medium for buying and

selling stocks and shares. Instead it provides services which are multi dimensional and

multi-focused in their scope. There are several advantages in utilizing our Stock Brokingservices, which are the reasons why it is one of the best in the country. .

Karvy offers trading on a vast platform; National Stock Exchange, Bombay Stock

Exchange and Hyderabad Stock Exchange. More importantly, it make trading safe to the

maximum possible extent, by accounting for several risk factors and planning

accordingly. It is assisted in this task by our in-depth research, constant feedback andsound advisory facilities. Their highly skilled research team, comprising of technical

analysts as well as fundamental specialists, secure result-oriented information on markettrends, market analysis and market predictions. .

DEPOSITORY PARTICIPANT SERVICES:- .

The onset of the technology revolution in financial services Industry saw the emergence

of KARVY as an electronic custodian registered with National Securities Depository Ltd

(NSDL) and Central Securities Depository Ltd (CSDL) in 1998. KARVY set standardsenabling further comfort to the investor by promoting paperless trading across the

country and emerged as the top 3 Depository Participants in the country in terms of

customer serviced. Offering a wide trading platform with a dual membership at bothNSDL and CDSL, it is a powerful medium for trading and settlement of dematerialized

shares. Karvy has established live DPMs, Internet access to accounts and an easier

transaction process in order to offer more convenience to individual and corporate

investors. A team of professional and the latest technological expertise allocatedexclusively to their Demat division including technological enhancements like SPEED-e;

make their response time quick and their delivery impeccable. A wide national network

makes their efficiencies accessible to all.

FINANCIAL PRODUCTS DISTRIBUTION SERVICES:- .

The paradigm shift from pure selling to knowledge based selling drives the business

today. With our wide portfolio offerings, Karvy occupy all segments in the retail
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financial services industry. A team of highly qualified and dedicated professionals drawn

from the best of academic and professional backgrounds are committed to maintaining

high levels of client service delivery. This has propelled them to a position among thetop distributors for equity and debt issues with an estimated market share of 15% in terms

of applications mobilized, besides being established as the leading procurer in all public

issues.

ADVISORY SERVICES:- .Under their retail brand KARVY the Finapolis', it delivers advisory services to a

cross-section of customers. The service is backed by a team of dedicated and expert

professionals with varied experience and background in handling investment portfolios.They are continually engaged in designing the right investment portfolio for each

customer according to individual needs and budget considerations with a comprehensive

support system that focuses on trading customers' portfolios and providing valuableinputs, monitoring and managing the portfolio through varied technological initiatives.

This is made possible by the expertise it has gained in the business over the years.

Another venture towards being investor-friendly is the circulation of a monthly magazinecalled KARVY - the Finapolis' covering thlatest of market news, trends, investmentschemes and research-based opinions from experts in various financial fields.

PRIVATE CLIENT GROUP:-

This specialized division was set up to cater to the HIGH NET WORTH INDIVIDUAL

and institutional clients keeping in mind that they require a different kind of financialplanning and management that will augment not just existing finances but there lifestyle

as well. Here they follow a hard-nosed business approach with the soft touch of dedicated

customer care and personalized attention. For this purpose they offer a comprehensive

and personalized service that encompasses planning and protection of finances, planningof business needs and retirement needs and the host of other services, all provided on a

one-to-one basis.

DEPOSITARY SYSTEM

Although India had a bright capital market which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed

transfer of securities. The enactment of Depositories Act in August 1996 paved the way

for establishment ofNational Securities Depository Limited (NSDL), the firstdepository in India and Central Depository Services (India) Ltd. (CDSL). In a span of

about 11 years, investors have switched over to electronic [demat] settlement and

National Securities Depository Limited (NSDL) stands at the centre of this change.

DEPOSITORY SYSTEM:-

A "Depository" is a facility for holding securities, which enables securities transactions

to be processed by book entry. To achieve this purpose, the depository may immobilize

the securities or dematerialise them (so that they exist only as electronic records). India


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Each and every activity of CDSL stem from the essential reason behind forming this

depository, i.e. to encourage India's individual investors to benefit from actively

participating in a depository. A Depository facilitates holding of securities in theelectronic form and enables securities transactions to be processed by book entry by a

Depository Participant (DP), who as an agent of the depository, offers depository services

to investors. According to SEBI guidelines, financial institutions, banks, custodians,stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial

owner (BO) has to open a demat account through any DP for dematerialisation of his

holdings and transferring securities. The balances in the investors account recorded andmaintained with CDSL can be obtained through the DP. The DP is required to provide

the investor, at regular intervals, a statement of account which gives the details of the

securities holdings and transactions. The depository system has effectively eliminated

paper-based certificates which were prone to be fake, forged, counterfeit resulting in baddeliveries. CDSL offers an efficient and instantaneous transfer of securities. CDSL was

promoted by Bombay Stock Exchange Limited (BSE) jointly with leading banks such as

State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered

Bank, Union Bank of India and Centurion Bank.

LEGAL FRAMEWORK:-

The operations of the depositories are primarily governed by the Depositories Act, 1996,

Securities and Exchange Board of India (Depositories & Participants) Regulations, 1996,Bye-Laws approved by SEBI, and Business Rules framed in accordance with the

Regulations and Bye-Laws. The Depositories Act passed by Parliament received the

President's assent on August 10, 1996. It was notified in a Gazette on August 12 of the

same year. The Act enables the setting up of multiple depositories in the country. Thiswas to see that there is competition in the service and there is more than one depository in

operation. At present, two depositories are registered with SEBI - The National SecuritiesDepository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).Only a company registered under the Companies Act, 1956 and sponsored by the

specified category of institutions can set up a depository in India. Before commencing

operations, depositories should obtain a certificate of registration and a certificate ofcommencement of business from SEBI.

SERVICES OF DEPOSITORY :-

A depository established under the Depositories Act can provide any service connected

with recording of allotment of securities or transfer of ownership of securities in the

record of a depository. Any person willing to avail the services of the depository can doso by entering into an agreement with the depository through any of its participants. A

depository can provide depository services only through a DP. A depository cannot

directly open accounts and provide services to clients. Every depository in its Bye-Lawsmust state which securities are eligible for Demat holding. Generally, the following

securities are eligible for Dematerialisation:


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(a) Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable

securities of a like nature in or of any incorporated company or other body corporate.

(b) Units of Mutual Funds, rights under collective investment schemes and venturecapital funds, Commercial paper, Certificates of Deposit, Securitised debt, money market

instruments, government securities, National Saving Certificates, Kisan Vikas Patra andunlisted securities.

FUNCTIONS OF DEPOSITORY:-

Dematerialisation:- One of the primary functions of depository is to eliminate orminimise the movement of physical securities in the market. This is achieved through

Dematerialisation of securities. Dematerialisation is the process of converting securitiesheld in physical form into holdings in book entry form.

Account Transfer: The depository gives effects to all transfers resulting from the

settlement of trades and other transactions between various beneficial owners by

recording entries in the accounts of such beneficial owners.

Transfer and Registration: A transfer is the legal change of ownership of a security in

the records of the issuer. For effecting a transfer, certain legal steps have to be taken like

endorsement, execution of a transfer instrument and payment of stamp duty. Thedepository accelerates the transfer process by registering the ownership of shares in thename of the depository. Under a depository system, transfer of security occurs merely by

passing book entries in the records of the depositories, on the instructions of the

beneficial owners.

Corporate Actions: A depository may handle corporate actions in two ways. In the first

case, it merely provides information to the issuer about the persons entitled to receive

corporate benefits. In the other case, depository itself takes the responsibility of

distribution of corporate benefits.

Pledge and Hypothecation: The securities held with NSDL may be used as collateral tosecure loans and other credits by the clients. In a manual environment, borrowers are

required to deliver pledged securities in physical form to the lender or its custodian.

These securities are verified for authenticity and often need to be transferred in the nameof lender. This has a time and money cost by way of transfer fees or stamp duty. If the

borrower wants to substitute the pledged securities, these steps have to be repeated. Use

of depository services for pledging/ hypothecating the securities makes the process very


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simple and cost effective. The securities pledged/hypothecated are transferred to a

segregated or collateral account through book entries in the records of the depository

Linkages with Clearing System: Whether it is a separate clearing corporation attachedto a stock exchange or a clearing house (department) of a stock exchange, the clearing

system performs the functions of ascertaining the pay-in (sell) or pay-out (buy) of brokerswho have traded on the stock exchange. Actual delivery of securities to the clearing

system from the selling brokers and delivery of securities from the clearing system to thebuying broker is done by the depository. To achieve this, depositories and the clearing

system should be electronically linked.

BENEFITS:-

The direct and indirect benefits of the depository system are described in detail below. Inthe depository system, the ownership and transfer of securities takes place by means of

electronic book entries. At the outset, this system rids the capital market of the dangers

related to handling of paper.

Elimination of bad deliveries:-

In the depository environment, once the holdings of an investor are dematerialised, thequestion of bad delivery does not arise, i.e., their transfer cannot be rejected due to defect

in the quality of the security. All possible reasons for objecting transfer of title due to

deficiencies associated with transfer deed and share certificates are completely eliminatedsince both transfer deed and share certificates are eliminated in depository system.

Elimination of all risks associated with physical certificates:-

Dealing in physical securities has associated security risks of theft of stocks, mutilation or

loss of certificates during movements to and from the registrars. These expose theinvestor to the cost of obtaining duplicate certificates, advertisements, etc. Such problems

do not arise in the depository environment.

No stamp duty:-

There is no stamp duty for transfer of equity instruments and units of mutual funds in the

depository system. In the case of physical shares, stamp duty of 0.5% is payable ontransfer of shares.

Immediate transfer and registration of securities:-

In the depository environment, once the securities are credited to the investors account on

pay out, he becomes the legal owner of the securities. There is no further need to send itto the company's registrar for transfer of ownership or registration which is necessary in

the case of physical securities. This process normally takes longer than the statutory

prescribed period of two months thus exposing the investor to opportunity cost of delay


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in transfer and to risk of loss in transit. To overcome this, the normally accepted practice

is to hold the securities in street names, i.e., not to register the change of ownership.

However, if the investors miss a book closure, the

securities are not good for delivery and the investor would also stand to loose his

corporate entitlements.

Faster settlement cycle:-

With the introduction of electronic form of settlement, Indian Capital markets have

moved from 15 day long settlement cycle to T+2 settlement cycle where the settlementtakes place on 2nd day from the day of trading. This enables faster turnover of stock and

enhances liquidity with the investor.

Buyer is secured:-

In the physical environment, seller was secured since the sale proceeds were always fullyrealisable but the buyer was not, since it was not certain whether shares purchased will

get transferred or not. The market principle that buyer is king did not apply to the capital

market. This situation has now been corrected.

Faster disbursement of non-cash corporate benefits:-

NSDL provides for direct credit of non-cash corporate entitlements like rights, bonus,etc., to an investor's account, thereby ensuring faster disbursement and avoiding the risk

of certificates getting lost in transit.

Reduction in rate of interest on loans:-

Some banks provide this benefit against pledge of Dematerialised securities.Dematerialised securities eliminate hassles/risks like getting securities registered in their

name at the time of book closure if the pledgee defaults in repayment. Also eliminated is

the risk of stocks coming under objections when they are sent to the company's registrarfor registration, if the pledge has to be invoked.

Increase in maximum limit of advances:-

This has increased from Rs. 10 lakh to Rs. 20 lakh per borrower. There is also a reduction

in minimum margin from 50% to 25% by banks for advances against

Dematerialised securities as per the Monetary and Credit Policy of Reserve Bank of Indiafor the first half of 1998-99.

Reduction in brokerage:-


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Since introduction of electronic settlement of securities there has been a significant fall in

the brokerage charged for brokers for effecting and settling trades of investors at the

stock exchanges. This benefit is given to investors as dealing in Dematerialised securitiesreduces their back office cost of handling paper. It also eliminates the risk of being the

introducing broker.

Reduction in handling of huge volumes of paper:-

In the physical environment, every entity involved in purchase or sale of securities was tohandle papers and pass on papers to the next entity. Number of papers to handle increased

with the volume of transactions. However, in the depository environment, except the

delivery instruction to be given by the client/broker, there is no other paper movement.

NSDL has permitted use of floppies to give debit instructions for large volumes oftransactions.

NSDL has recently introduced a common internet based platform, SPEED-e, for Clients

of all DPs so that Clients can issue instructions to their DPs through Internet. UsingSPEED-e the client need not write delivery instructions or visit its DP for issuing

instructions. Clients can monitor the status of instructions given by them on SPEED-e on

Internet.

Periodic status reports:-

DPs need to provide periodic reports to investors on their holdings and transactions. Thisleads to better management control on the part of the servicing agency and better

information for the investors.

Elimination of problems related to nomination:-

An account holder can get securities in all companies transmitted/transferred to hisaccount by completing formalities with a single entity i.e. DP. He need not deal with all

companies individually.

Dematerialised securities can be delivered in the physical segment:-

Securities forming a part of the SEBI specified compulsory list (wherein delivery in

demat form is mandatory for all categories of investors) can be delivered in physical formin the stock exchanges connected to NSDL & CDSL. This requirement is applicable to

physical deliveries wherein the number of securities is less than 500.

Elimination of problems related to change of address of investors,

transmission, etc.:-

In case of change of address or transmission of Demat shares, investors are saved from

undergoing the entire change procedure with each company or registrar. Investors have to

only inform their DP about the change along with all relevant documents. The required


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changes are effected in the database of all the companies where the investor is a

registered holder of securities. The investor will receive all cash corporate benefit like

dividends, interest warrants, redemption money, etc. at the new address with immediateeffect.

Elimination of problems related to selling securities on behalf of a minor:-

NSDL system provides facility for opening demat accounts in the name of minor and

holding their securities in their own name. Since, under the Contract Act, 1872, the minoris not eligible to enter into contracts at their own, the account in the name of minor is

required to be operated by their guardian. The guardian may be the natural guardian,

guardian appointed by will or the guardian appointed by an order of the court. The

minor's guardian will be eligible to open, operate and close the account on behalf of theminor. The guardian(s) would be signing the instruction slips to be given to the

depository participant, on behalf of the minor. A minor however cannot be a joint

account holder. Non cash corporate benefits arising out of bonus/rights allotment of

shares are credited to the account of the minor. Cash corporate benefits will be issued bythe concerned issuer of securities in the name of the minor.

Convenient consolidation of accounts:-

If multiple accounts were opened by investors, all accounts can be consolidated into oneaccount by giving instructions to DP. In case of physical certificates, consolidation of

folios required correspondence with all the companies individually.

Convenient portfolio monitoring:-

Client can monitor portfolio by checking a single statement of holding/transaction.

Newer services:-

Opportunities like pledge/hypothecation and stock lending are given specifically by the

depository system.

Increased volumes:-

Due to ease in transaction and reduced costs, many players have entered/ increased theirtransactions. This helps in improving liquidity.

SAFETY:-

NSDL has implemented various checks and measures in the depository system to ensure

safety of the investors' holdings. These include:


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A DP can begin operations only after registration by SEBI. The registrationprocess is based on the recommendation from NSDL after undertaking their own

independent assessment and evaluation. SEBI regulations have prescribedfulfillment of several criteria for becoming a DP.

Depository Participants are allowed to effect any debit and credit to an account

only on the basis of valid instructions from the client.

There are periodic inspections into the activities of both DPs and R&T agents by

NSDL. This also includes records based on which the debit/credit are effected.

The data interchange between NSDL and its business partners is protected bystandard protection measures such as encryption. This is a SEBI requirement.

There are no direct communication links between two business partners and allcommunications between two business partners are routed through NSDL. All

investors have a right to receive their transaction statement periodically from the

DP.

Every month NSDL forwards statement of account to a random sample of

investors as a counter check.

In the depository, the depository holds the investor accounts on trust. Therefore, if

the DP goes bankrupt, the creditors of the DP will have no access to the holdings


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in the name of the clients of the DP. These investors can then either rematerialise

their holdings or transfer them to a different account held with another DP.

NSDL has a complete record of the client's transactions in addition to the records

of the DP

Certification in Depository Operations:-

NSDL has introduced a Certification Programme in Depository Operations. This has

been made compulsory for all DPs. They have to appoint at least one person qualified inthis certification programme in their branches. This way, NSDL ensures that each branch

of a DP which services investors has at least one person who has thorough knowledge

about depository system.

Investor grievances:-

All grievances of the investors are to be resolved by the concerned business partnerwithin 30 days. If they fail to do so, the investor has the right to approach NSDL at the

investor grievance cell of NSDL which would work towards resolution of the grievance.

Insurance Cover:-

NSDL has taken a comprehensive insurance policy to protect the interest of the investorsin cases of failure of the DP to resolve a genuine loss.


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Computer and communication infrastructure;-

NSDL and its business partners use hardware, software and communication systems

which conform to industry standards. Further, the systems are accepted by NSDL only

after a rigorous testing procedure. NSDL's central system comprises an IBM mainframesystem with a back-up facility and a remote disaster back-up site. Details with regard to

back-up system are as under:

Machine level back up: The IBM mainframe situated at 'Trade World' (NSDL's office

in Mumbai) in which the data is processed has adequate redundancy built into its

configuration. There is a standby central processing unit (CPU) to which processing canbe switched over if the main system CPU fails. The disk has RAID implementation

which ensures that a single point failure will not lead to loss of data. The system hasspare disk configuration where data is automatically copied from the main disk when the

first failure is encountered (due to RAID implementation - first failure does not result in

loss of data). All network components like router, communication controllers, etc., haveon-line redundancy and thus a failure does not result in loss of transaction.

Disaster back up site: In addition, a disaster back up site, equipped with a computer

identical to the mainframe computer & computing resources, has been set up at a remote

location away from Mumbai. NSDL operates generally from its Mumbai office but often

operations are conducted from the disaster back up site to ensure that the disaster site isalways in working condition.

Back-up in case of power failure: Continuity in power supply to the main systems is

assured by providing dual uninterrupted power supply (UPS) for IBM-Mainframe andrelated components wherein the two UPSs are connected in tandem. In case of failure of

primary UPS, the secondary UPS takes over instantaneously and thus, there is no

interruption in operation.

Periodic Review: The NSDL hardware, software and communication systems arecontinuously reviewed in order to make them more secure. These reviews are a part of an

ongoing exercise wherein security considerations are given as much importance asoperational efficiency.

These safety measures taken by NSDL have to be complemented by a similar set ofmeasures at the end of each member of the depository system like the DPs, Issuers and

R&T Agents.

DEMAT PROCESSING IN KARVY STOCK BROKING LTD


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Karvy Stcok Broking Ltd. is one of the leading Depository Participant (DP) in the

country. Karvy Demat services offers the investors a secure and convenient way to keep

track of their securities and investments, over a period of time, without the hassle ofhandling physical documents that get mutilated or lost in transit. Karvy Stcok Broking

Ltd. is Depository particpant both with -National Securities Depositories Limited

(NSDL) and Central Depository Services Limited (CDSL). Karvy Demat services areaccessable any of its network over 575 branches / investor service centre located in over

375 cities and towns across the country. Karvy Demat services business has a distinction

of having all its operations ISO 9001:2000 certified with the state of the art-technologyand operations capabilites. Its Demat services have innovated over time and it provides

online access to the account statements and transaction alerts through SMS to its clients.

DEMAT ACCOUNT:-Demat refers to a dematerialised account. Just as open an account

with a bank if public want to save thier money, make cheque payments etc, the investorneed to open a demat account if he want to buy or sell stocks. So it is just like a bank

account where actual money is replaced by shares. The investors have to approach the

DPs (remember, they are like bank branches), to open their demat account. Lets say theinvestor Mr. Xs portfolio has 100 of Satyam, 200 of Reliance and 120 of TCS shares.All these will show in his demat account. So, his doent has to possess any physical

certificates showing that he own these shares. They are all held electronically in his

account. As he buy and sell the shares, they are adjusted in his account. Just like a bankpassbook or statement, the DP will provide the investor with periodic statements of

holdings and transactions.

NEED of DEMAT ACCOUNT:-Nowadays, practically all trades have to be settled in

dematerialised form. Although the market regulator, the Securities and Exchange Boardof 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 andinvesting. The demat account reduces brokerage charges, makes pledging / hypothecationof shares easier, enables quick ownership of securities on settlement resulting in

increased liquidity, avoids confusion in the ownership title of securities, and provides

easy receipt of public issue allotments.It also helps you avoid bad deliveries caused by signature mismatch, postal delays and

loss of certificates in transit. Further, it eliminates risks associated with forgery,

counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also

avoid stamp duty (as against 0.5 per cent payable on physical shares), avoid filling up oftransfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.

STEPS INVOLVED IN OPENING A DEMAT ACCOUNT

First, an investor who wants to open a Demat Account to dematerialise their holdings has

to approach a Karvy and fill up an account opening form. The account opening form mustbe supported by copies of any one of the approved documents to serve as proof of

identity (POI) and proof of address (POA) as specified by SEBI. Besides, production of

PAN card in original at the time of opening of account has been made mandatory.All applicants should carry original documents for verification. Further, the investor has


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to sign an agreement with Karvy in a depository prescribed standard format, which

details rights and duties of investor and DP (Karvy). Karvy provides the investor with a

copy of the agreement and schedule of charges for their future reference. Afterverification of the entire certificate, Karvy opens the account in the system and gives an

account number, which is also called BOID (Beneficiary Owner Identification number).

SEBI has rationalised the cost structure for processing of Demat account account openingcharges, transaction charges for credit of securities, and custody charges. The Karvy may

revise the charges by giving 30 days notice in advance.

No charges shall be levied by Karvy for transfer of the securities lying in his account to

another branch or to another DP of the same depository or another depository.

In case the BO Account at transferor DP is a joint account, the BO Account at transfereeDP should also be a joint account in the same sequence of ownership.

PROCEDURE:-

1. Filling account opening form (available with Karvy).

2. Submitting the duly filled account opening form with introduction documents as

may be required.

3. Signing in the agreement with Karvy (agreement will state rights & obligations of

both parties). The agreement will contain the fee structure of Karvy. Karvy would

give the client a copy of this signed agreement for his record.

4. Karvy would give him Client Id no. (Account No.) once his depository account is

opened. This Client Id Number along with Karvy Id Number forms a uniquecombination. Both of these should be quoted in the future correspondence withKarvy/NSDL/ Issuing Company/their registrar & transfer (R&T) agent.


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5. Karvy would give to his clients pre-printed instruction slips for depository

services viz., dematerialisation, delivery instruction for trades, etc.. It should be

preserved carefully.

Karvy would give a list of deadlines for giving instructions for various depository

activities viz., transfer for effecting sale, purchase, etc.

TYPES OF ACCOUNTS:-

Type of depository account depends on the operations to be performed. There are threetypes of Demat accounts which can be opened with Karvy.

Beneficiary Account

Clearing Member Account and

Intermediary Account.

Beneficiary Account:- A Beneficiary Account is an ownership account. The holder/s of

securities in this type of account own those securities

Clearing Member Account:- The Clearing Member Account and Intermediary Account

are transitory accounts. The securities in these accounts are held for a commercial

purpose only. A Clearing Member Account is opened by a broker or a Clearing Member

for the purpose of settlement of trades.

Intermediary Account:- An Intermediary Account can opened by a SEBI registered

intermediary for the purpose of stock lending and borrowing.

DOCUMENTS REQUIRED FOR VERIFICATION:- For the purpose of verification,

the investors have to submit the following documents, as prescribed by SEBI, along withthe stipulated account opening form. A beneficiary account must be opened only after

obtaining a proof of identity and address of the applicant. An authorised official of the

Karvy would verify the photocopies of any of following documents submitted with theircorresponding originals and put his/her signature on them with remarks "verified with

original" before proceeding to open the account.

(a) Proof of Identity (POI)-Any One

Passport


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Self-declaration by High Court & Supreme Court judges, giving the new

address in respect of their own accounts.

Identity card/document with address, issued by

Central/State Government and its Departments,

Statutory/Regulatory Authorities,

Public Sector Undertakings,

Scheduled Commercial Banks,

Public Financial Institutions,

Colleges affiliated to Universities (this can be treated as valid only till the time the

applicant is a student) and

Professional Bodies such as ICAI, ICWAI, Bar Council etc., to their Members.

The aforesaid documents are the minimum requirement for opening a Beneficial Owner

Account. After verifying the all the documents submitted by the applicant, Karvy would

open account in the name of applicant. While they only ask for photocopies of thedocuments, they will need the originals for verification. The applicant should have to

submit a passport size photograph on which he sign across.

DOCUMENTS REQUIRED FOR OPENING DEMAT ACCOUNT & TRADING

ACCOUNT:-

Sl. No.

Requirements

Demat A/c

Trading A/c

Explanation


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1

Photographs

One

One

Latest Colour Photograph Pass Port Size Neatly pasted and signed across

2

Nominee Photo

One

-


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POI & POA of Nominee to be provided

3

PAN Card

One Copy

One Copy

All accounts will be opened on the name Appearing on PAN Card

4

Proof of Identity - Any one

One copy

One copy

Passport, Voter Id, Driving License

5


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Proof of Address - Any One

One copy

One copy

Passport, Voter Id, Driving License, Ration card, Bank Pass Book / Statement, Verified

copies of Electricity Bill, Telephone bill not more than 2 months old, Mobile bills notaccepted

6(a)

Bank Statement


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One copy

One copy

Recent bank Statement having at least 3 months transactions verified by your Bankers Online Statement not accepted.

6(b)

Bank Pass Book

One copy

One copy

First page & recent 3 months transaction page.

7

Cancelled Cheque


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One Cheque

One Cheque

Please mention Zero as the amount and Do not sign the cheque preferably with MICR

Code

8

Client Signature

All the places Marked X

Signature must match the one given in the PAN Card in case the signature is not tallying

then bankers attestation is required on page 26 for Stock Broking and on Bank Letter

head for Demat Account.


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9

Witness Name & Signature

Required

Required

In all the places where the client has signed.

10

Email Id

Required

Required

For assistance purpose.

FEE STRUCTURE OF KARVY:-

NOW to the crux the cost of opening and holding a Demat account. There are four

major charges usually levied on a Demat account. i.e. Account opening fee, annualmaintenance fee, custodian fee and transaction fee. All the charges vary from DP to DP.

Karvy charges the following fees for Demat Account and Trading Account from their

clients for the services rendered by the Karvy.


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Sl.No.

Requirements

Demat A/c

Trading A/c

Explanation

1

Agreement Cost

65.00

100.00

Stamp Paper Cost.

2

AMC

422.00

-

Broking Clients Only


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3

Refundable Deposit

-

5000.00

Non-Interest Bearing

Total Payable

487.00

5100.00

Account-Opening Fee:- It is levied when the applicant opens the Demat account with

Depository Participant. Karvy does not charge account opening fee from their clients.

Annual maintenance fee:- This is also known as folio maintenance charges, and is

generally levied in advance.

Custodian fee:- This fee is charged monthly and depends on the number of securities

(international securities identification numbers ISIN) held in the account. It generally

ranges between Rs.0.5 to Rs.1 per ISIN per month. Karvy will not charge custody fee for

ISIN on which the companies have paid one-time custody charges to the depository.

Transaction fee:- The transaction fee is charged for crediting/debiting securities to and

from the account on a monthly basis. Karvy is charging upto Rs.50/- per debit transaction

of the account. In addition, service tax is also charged by the Karvy.

PLEDGING:-


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Dematerialised shares could be pledged. In fact, this is more advantageous as compared

to pledging share certificate. The following procedures are adopted while pledging the

dematerialized shares.

Both (Pledgor) as well as the lender (Pledgee) must have Demat Account.

One must initiate the pledge by submitting the details of the securities to be

pledged in a standard format which is available in Karvy.

The pledge should confirm the request through Karvy.

Once this is done, securities are pledged.

All the commercial documentation between the pledgor and pledge are handled

outside the depository system.

After receiving the repayment, the pledgee would instruct the Karvy forrequesting closure of pledge through standard format.

TRADING OF SHARES:-


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Karvy provides the following options to his clients regarding trading of the

dematerialized shares.

Cash Trading:-

Documents

project of karvy on demat