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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).



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.



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



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)



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.



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



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.



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



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



Dematerialization Process

INVESTO

RDP

NSD

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R & T

AGENT

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4

52

A

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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.