PROJECT REPORT

ON

Depository at

ThinkNEXT Technologies PVT. Ltd

An industrial training report submitted in partial fulfillment of the requirement for

the degree of

MASTERS OF BUSINESS ADMINISTRATION

(2017-2018)

Submitted by:

SURJIT SINGH

MBA 3rd SEM

Uni. Roll no. 2016MGB1230

GNDU REGIONAL CAMPUS SATHIALA

1
DECLARATION

I hereby declare that the Training Report was submitted by me under the
supervision and guidance of MR GOPAL PANDEY , project guide, College of
GNDU REGIONAL CAMPUS SATHIALA in partial fulfillment of M.B.A 3rd
semester. I further declare that I am solely responsible for omission and
commission of errors if any.

(SURJIT SINGH)

Signature of the student

2
ACKNOWLEDGEMENT

Amongst the wide panorama of people who provided me the inspiration,

guidance and encouragement, I take this opportunity to thank those who gave me
indebted assistance and constant encouragement for completing this project.

I would like to thank Mrs. Rajni Wadhwa Bedi, HR Executive of

ThinkNEXT Technologies Pvt. Ltd., and Mohali for her continuous help in
completion of this project. She motivated me and was available whenever her
assistance was sought. She was actively involved throughout the project and was
also kind enough to tell me the strengths and weaknesses and how I could
improve myself to face the corporate world. Without her support the completion
of this project would be impossible.

I would like to extend my thanks to all the employees/staff of the

ThinkNEXT Technologies Pvt. Ltd., Mohali for their support.

Thanking you All

Place: Mohali

(SURJIT SINGH)

3
TABLE OF CONTENT

Sr.No. Chapter Name Page

No.
1. Introduction 5
1.1 Meaning of Depository
1.2 History

2. Review of Literature 7
3. Depositories in India 10
3.1 National Securities Depository Ltd.(NSDL)
3.2 System View of NSDL Depository System
3.3 Maintenance of Accounts at the Central
System
3.4 Central Depository Services Limited(CDSL)
3.5 Demat Account
3.6 Steps Involved in the Process of
Dematerialization
3.7 Rights
3.8 Online Trading
3.9 Benefits of Demat Account
3.10 Disadvantages of Demat Account
3.11 Government Securities

4. 41
4.1 Intermediaries of Depositories
4.2 Difference Between NSDL And CDSL
4.3 Need and Importance of Depository System

5. Conclusion 46

6. Bibliography 47

4
1.1 COMPANY PROFILE

ThinkNEXT Technologies Private Limited (Formerly Brilliant Software

Solutions) is an ISO 9001:2008 certified software development company founded
in August 2009 and it is approved from Ministry of Corporate Affairs which deals
in University/College/School ERP Solutions, Android /iPhone Applications
development, Web designing, Web development, Discount Deals
(www.thinknextcard.com, www.tricitydeal.com), Bulk SMS, Voice SMS, Bulk
Email, Biometric Time Attendance, Access Control, SEO/SMO, Database
Solutions, Payment Gateway Integration, E-Mail Integration, Industrial Training,
Corporate Training and Placements etc. ThinkNEXT Technologies provides
software solutions using latest technologies e.g. Smart Card, NFC, Biometrics,
GPS, Barcode, RFID, SMS, Auto SMS (Short code), Android, iPhone, Web,
Windows and Mobile based technologies

ThinkNEXT has wide expertise in .NET, Crystal Reports, Java, PHP, Android,
iPhone, Databases (Oracle and SQL Server), Web Designing, Networking, Web
Server configurations, various RAID Levels etc.

ThinkNEXT Technologies has also setup its offices in USA, Delhi, Shimla and
Bathinda for its software support. ThinkNEXT has its own multiple Smart Card
printing, encoding and barcode label printing machines to provide better and
effective customer support solutions. ThinkNEXT has also setup its own

5
placement consultancy and is having numerous placement partner companies to
provide best possible placements in IT industry.

ThinkNEXT Technologies has developed for the first time in northern region
cloud computing based Cloud Campus 4.0 to facilitate knowledge and placement
centric services. It is a unique concept for effective and collaborative learning.

ThinkNEXT deals exclusively in campus automation through Smart

Campus ERP Solutions. Therefore we have better experience in handling
large group of institutions through proper time-tested policies and
procedures.
First Company of India who has Launched NFC Technology (The Future)
for Smart Campuses through NFC Smart Cards.
First Company of India who has launched Android Version of Smart
Campus ERP Solutions for Mobiles and Tablet PCs.
First company of India who has developed SMS Opt-In Technology so
that Institutes/Colleges can send Transactional SMS with SMS Sender ID
and without SMS Template approval.
First company of Punjab, Haryana, Himachal, J&K (Northern region) who
launched Smart Cards (Contact Type), Smart Cards (Contactless) in
Punjab for campus automation.
First company of India which has launched its ThinkNEXT Smart Card as
Discount Card in more than 120 enterprises.
Established own multiple Smart Card Designing, Smart Card Printing,
Smart Card Lamination and Oyster Barcode Printing Units.
Multiple SMS Gateway Support.

SERVICES:

We provide Software Solutions using latest technologies or features:

NFC
Biometrics (Fingerprint with Automated Online)

6
 Smart Card
Barcode
RFID
SMS
Short code 56767 (Auto SMS)
Android
ions (phone)
GPS
WAP (For WAP Enabled Mobile Phones)
Multiple SMS Gateway Support
Web based Technologies (365x24x7 services)
Windows based Technologies
Mobile based Technologies
Webcam support for various operations
Parallel Internet, Intranet and Wi-Fi Support

Vision:

ThinkNEXT Technologies Pvt. Ltd. are already very flexible and scalable. Still,
we always take care of specific requirements of our clients. Our highly
committed R&D team makes our software feature rich, dynamic and future
tuned everyday so that our clients always maintain the lead over their
competitors. The development of the software is being done and the purpose full
customization of the package is carried out in the ThinkNEXT lab.

Mission:

ThinkNEXT is pioneer in Smart Campus ERP Solutions for

Universities/Colleges/Schools using latest technologies and features. We
provide software solutions using .NET, PHP, Android, iPhone, Java

7
 technologies with three tier-architecture support. We provide back-end solutions
using MS SQL Server, Oracle, and MySQL.

Quality Policy:

We have wide experience working with eminent Educationists, Managements,

Directors, Principals, Head of Departments, other Staff Members, Parents and
students. Therefore we do not sell only software Modules but an innovative
system which has more importance than just ERP software modules. Today
Smart Campus solutions are a need of hour for every University/Group of
Colleges or an Institution to make edge over others and maintain a lead over
their competitors. Our Research and Development team is committed to make
your institute(s) to maintain lead over their competitors.

More Services:

ThinkNEXT offers various industry-ready programs so that student needs

not to struggle for jobs. ThinkNEXT offers 6 weeks/2 Months/6 Months
training programs to make students industry.

ThinkNEXT is pioneer in providing best placements in Industry. We offer

minimum five job interviews for each student and provide 100%
Placement Assistance.

ThinkNEXT Offers Life-Time Validity Learning and Placement Card.

Students undergoing six months training will have advantage to learn free
of cost anything against that training program for life-time.

ThinkNEXT offers Part-Time/Full Time Job Offer for each student during
training so that students can earn while they learn. Student can bear their
food, accommodation and other expenses on.

8
MANAGEMENT OF ThinkNEXT PVT.LTD.

BOARD OF DIRECTOR

Sunil Jindal

Munish Mittal

Ghansham Das

MANAGING DIRECTOR

Sunil Jindal

MARKETING HEAD

Suresh Chandra

IT HEAD

Mukesh Kumar

ThinkNEXT Edge:-
Industrial Training and Certificates from Software/Electronics Company not
just from an institute
Free Interview Preparation, Spoken English and Personality Development
Programmers.
Opportunity to get placed in ThinkNEXT and numerous other companies.
Life-Time Validity Learning and Placement Card.
Part-Time/Full-Time Job Offer for each student during Training.
Think NEXT Cloud Campus advantage not only during training, even after
completion of training for life time.
One-to-one PC and Corporate Environment.

9
 Learn from Developers/Industry experts rather than Trainers/Teachers.
Direct interaction with Developers/Industry Experts.
Industrial training programmers are designed to make students industry-
ready.
Large Display LEDs in each Class-Room/Lab, Wi-Fi Labs.
Guest Lectures/Seminars by Industry Experts.
Every Student is provided with Live Projects mentored by Software/
Electronics/Industry Experts.
100% Placement assistance.

ThinkNEXT Cloud Campus Advantages:-

Each Student will have Unique User ID and Password to Login to
ThinkNEXT Cloud Campus 4.0 anytimeanywhere
View Numerous Technical, Personality Development Videos anytimeany
here
Students will be able to download e-Books, e-Journals, Class Notes,
Important Links and other study material.
ThinkNEXT Smart Campus is a step towards not only 100% placements but
also better job offers even after placements.
Student Profile, Instant Technical Updates, Class Notes, Project Report
Submitted, Attendance, Performance, Notice-Board, Class Timings etc.
Everything online.
Communication with industry experts, Technologists through cloud Campus
anytimeanywhere .

10
OBJECTIVES OF THE STUDY

To study the securities in market

To know the difference between NSDL and CDSL
To know the overall functioning of depository
To examine the satisfaction level of investors by the services provided by
NSDL and CDSL
To know about the benefits yielded to brokers
To understand the functioning of LSE
To know the brokers perception about NSDL and CDSL
To know about dematerialization.

11
DEPOSITORY

Introduction
Since the beginning of liberalisation process in 1991, the size of Indian capital
market expanded manifold. The traditional system of settlement through physical
transfer of securities failed to cope with the requirements of growing of the
market. Physical settlement mechanisms gave rise to inefficiencies and risks of
bad deliveries. Delays in transfer and registration, fake certificates and forgeries.
Minimisation of settlement risks and shortening of settlement cycles are the basic
requirements for greater depth and expansion of markets by upgrading the
existing trading system into a modern internationally competitive one .Severe
infrastructural bottlenecks delayed upgradation of Indian clearing and settlement
systems. These bottlenecks became more pronounced with every increase in the
number of investors and volume of trading in securities. Inability of clearing and
settlement infrastructure to efficiently manage the flow of paper work made it
difficult for the exchanges to shorten settlement cycles and move to rolling
settlement. The Depositories Act has paved the way for instituting an
infrastructure for eliminating various risks associated with capital market
transactions and increasing the efficiency of clearance and settlement systems. It
allows for dematerialisation and re-materialisation of securities in depositories
through electronic book entry thus reducing settlement risks and removing some
of the infrastructural bottlenecks.

12
History
Although India had a vibrant capital market which is more than a century old, the
paper-based settlement of trades caused substantial problems such as bad delivery
and delayed transfer of title. The enactment of Depositories Act in August 1996
paved the way for establishment of National Securities Depository
Limited (NSDL), the first depository in India. It went on to established
infrastructure based on international standards that handles most of the securities
held and settled in de-materialized form in the Indian capital markets.
NSDL has stated it aims are to ensuring the safety and soundness of Indian
marketplaces by developing settlement solutions that increase efficiency,
minimize risk and reduce costs. NSDL plays a quiet but pivotal role in developing
products and services that will continue to nurture the growing needs of the
financial services industry.
In the depository system, securities are held in depository accounts, which are
similar to holding funds in bank accounts. Transfer of ownership of securities is
done through simple account transfers. This method does away with all the risks
and hassles normally associated with paperwork. Consequently, the cost of
transacting in a depository environment is considerably lower as compared to
transacting in certificates. In August 2009, number of Demat account held with NSDL
crossed one crore.

What is a Depository?

A depository is an organisation which holds securities (like shares, debentures,

bonds, government securities, mutual fund units etc.) 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.

13
LEGAL FRAMEWORK

The Depositories Act 1956 provides the regulation of depositories in securities.

SEBI formulated the Depositories and participants Regulation Act, 1996 to
oversee the matter regarding admission and working of Depositories and its
participant. The Depositories Act passed by parliament received the President's
assents on August 10, 1996. The Act enables the setting up of multiple
depositories in the country. Only a company registered under the companies Act
(1956) and sponsored by the specified categories of institution can setup
depository in India. The Depository offers services relating to holding of
securities and facility processing of transaction in such securities in book entry
form. The transaction handled by depositories includes settlement of market
trades, settlement of off-market trades, securities lending and borrowing, pledge
& hypothecations.

ELIGIBILTY CRITERIA FOR DEPOSITORY

Any of the following may be a Depository:

A public financial institution as defined in section 4A of the Companies

Act, 1956.

A bank included in the second schedule to the RBI Act, 1934.

A foreign bank operating in India with the approval of the RBI.

14
 A Recognized Stock Exchange.

An institution engaged in providing financial services where not less than

75% of the equity is held jointly or severally by the institution.

A custodian of the securities approved by Government of India.

15
 Chapter -3

Depositories in India
Depository -: A bank or company which holds funds or securities deposited by
others, and where exchanges of these securities take place. A Depository (NSDL
& CDSL) in an organization like a Central Bank where the securities of a
shareholder are held in the electronic form at the request of the shareholder
through the medium of a Depositary Participant.

At present there are two depositories in India, these are:

National Security Depository Limited (NSDL)
Central Depository Services Limited (CDSL)

Depositories in India

NSDL CDSL

16
NSDL
Although India had a vibrant 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 title till recently. The enactment of Depositories Act in
August 1996 paved the way for establishment of NSDL, the first depository in
India. This depository promoted by institutions of national stature responsible for
economic development of the country has since established a national
infrastructure of international standards that handles most of the securities held
and settled in dematerialized form in the Indian capital market.

Using innovative and flexible technology systems, NSDL works to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring
the safety and soundness of Indian marketplaces by developing settlement
solutions that increase efficiency, minimise risk and reduce costs. At NSDL, we
play a quiet but central role in developing products and services that will continue
to nurture the growing needs of the financial services industry.

In the depository system, securities are held in depository accounts, which is more
or less similar to holding funds in bank accounts. Transfer of ownership of
securities is done through simple account transfers. This method does away with
all the risks and hassles normally associated with paperwork. Consequently, the
cost of transacting in a depository environment is considerably lower as compared
to transacting in certificates.

CDSL

A Depository facilitates holding of securities in the electronic 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,

17
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 and maintained 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 bad
deliveries. CDSL offers an efficient and instantaneous transfer of securities.

CDSL was promoted by BSE Ltd 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.

CDSL was set up with the objective of providing convenient, dependable

and secure depository services at affordable cost to all market participants.
Some of the important milestones of CDSL system are:
CDSL received the certificate of commencement of business from SEBI in February,
1999.
Honourable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of
CDSL on July 15, 1999.
Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing
house of BSE, started in July 1999.
All leading stock exchanges like the National Stock Exchange, Calcutta Stock
Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc. have
established connectivity with CDSL.
As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities,
bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc.
into the CDSL system.

Facilities offered by NSDL and CDSL

18
 Dematerialization i.e. converting physical certificates into their electronic
form
Rematerialization i.e. converting securities in DeMat form into physical
certificates

Assisting in repurchase / redemption of mutual fund units

Electronic settlement of trades in stock exchanges connected to NSDL

Electronic credit of securities allotted in public issue, rights issue

Receipt of non-cash corporate benefits such as bonus, in electronic form

Freezing of DeMat account to avoid debits from the account

Nomination facilities for DeMat accounts

Services related to change of address

Effective transmission of securities

Other facilities such as holding debt instruments in the same account or

availing stock lending / borrowing facility

19
Depository System is a boon to Capital
Market

Depository: Depositories gave a new dimension for conducting transactions in the

capital market primary as well as secondary in a more efficient and effective
manner and in a paperless form. In the depository system, the ownership and
transfer of securities takes place by means of electronic book entries.
Advantages of Dematerialization of Securities:
1. Elimination of bad deliveries.
2. Elimination of all risks associated with physical certificates.
3. Immediate transfer and registration of securities.
4. Faster disbursement of non-cash corporate benefits like rights, bonus, etc.
5. Reduction in brokerage for trading in dematerialized securities.
6. Reduction in handling of huge volumes of paper and periodic status reports to
investors.
7. Elimination of problems related to change of address of investor transmission
etc.

20
IMPORTANT FUNCTION IN DEPOSITORY SYSTEM

1. Dematerialisation

2. Re-materialisation

3. Initial Public Offers

4. Trading and Settlement

DEMATERIALISATION

Dematerialisation is the process of converting the physical form of shares into

electronic form. Prior to dematerialisation the Indian stock markets have faced
several problems like delay in the transfer of certificates, forgery of certificates
etc. Dematerialisation helps to overcome these problems as well as reduces the
transaction time as compared to the physical segment. The article discusses the
procedures, advantages and problems of dematerialisation.

The Indian Stock markets have seen a major change with the introduction of
depository system and scrip less trading mechanism. There were various problems
like inordinate delays in the transfer of share certificates, delay in receipt of
securities and inadequate infrastructure in banking and postal segments to handle
a large volume of application and storage of share certificates .To overcome these
21
problems physical dealing in securities should be eliminated . The Indian stock
market introduced the system of dematerialisation recognizing the need for scrip
less trading.

According to the Depositories Act, 1996, an investor has the option to hold shares
either in physical or electronic form .The process of converting the physical form
of shares into electronic form is called dematerialisation or in short demats. The
converted electronic data is stored with the depository from where they can be
traded. It is similar to a bank where an investor opens an account with any of the
depository participants. Depository participant is a representative of the
depository .The DP maintains the investors securities account balances and
intimates him about the status of holdings.

PROCESS OF DEMATERIALISATION:-

Surrender certificates for dematerialisation to your DP.

DP intimates to the Depository regarding the request through the system.
DP submits the certificates to the registrar of the Issuer Company.
Registrar confirms the dematerialisation request from depository.
After dematerialising the certificates, Registrar updates accounts and
informs depository regarding completion of dematerialisation.
Depository updates its accounts and informs the DP.
DP updates the demat account of the investor.

22
Physical Securities to Electronic Form

23
RE-MATERIALISATION

Re-materialisation is a process by which a beneficiary can convert the electronic

balances in his account into physical share certificate.

On remat the investor will get new certificates with new folio and certificate
number.

This entire procedure normally takes 30 days. No trading is possible on the

securities sent for remat.

PROCESS OF RE-MATERIALISATION:-

Make a request for re-materialisation.

Depository participant intimates depository regarding the request through
the system.
Depository confirms re-materialisation request to the registrar.
Registrar updates accounts and prints certificates.
Depository updates accounts and downloads details to depository
participant.
Registrar dispatches certificates to investor.

24
Electronic Form to Physical Securities

25
Comparison of a Depository with a Bank

Depositories Banks

Hold securities in an account Hold funds in an account

Transfer securities between Transfers funds between

accounts on the instruction of accounts on the instruction
the account holder of the account holder

Assist in transfer of
Assist in transfers without
ownership without having to
having to handle money
handle securities

Facilitates safekeeping of Facilitates safekeeping of

shares money

INITIAL PUBLIC OFFER (IPO)

26
An initial public stock offering (IPO) referred to simply as an "offering" or
"flotation," is when a company (called the issuer) issues common stock or shares
to the public for the first time. They are often issued by smaller, younger
companies seeking capital to expand, but can also be done by large privately-
owned companies looking to become publicly traded. In an IPO the issuer may
obtain the assistance of an underwriting firm, which helps it determine what type
of security to issue (common or preferred), best offering price and time to bring it
to market. An IPO can be a risky investment. For the individual investor, it is
tough to predict what the stock or shares will do on its initial day of trading and in
the near future since there is often little historical data with which to analyze the
company. Also, most IPOs are of companies going through a transitory growth
period, and they are therefore subject to additional uncertainty regarding their
future value. The first sale of stock by a private company to the public. IPOs are
often issued by smaller, younger companies seeking the capital to expand, but can
also be done by large privately owned companies looking to become publicly
traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which
helps it determine what type of security to issue(common or preferred), the best
offering price and the time to bring it to market. Also referred to as a public
offering". IPOs can be a risky investment. For the individual investor, it is tough
to predict what the stock will do on its initial day of trading and in the near future
because there is often little historical data with which to analyze the company.
Also, most IPOs are of companies going through a transitory growth period,
which are subject to additional uncertainty regarding their future values.

27
TRADING \ SETTLEMENT
Procedure for selling dematerialization securities:-

The procedure for buying and selling dematerialised securities is similar to the
procedure for buying and selling physical securities. The difference lies in the
process of delivery (in case of sale) and receipt (in case of purchase) of securities.

In case of purchase:-

The broker will receive the securities in his account on the payout day.

28
 The broker will give instruction to its DP to debit his account and credit BO's
account
BO will give Receipt Instruction to DP for receiving credit by filling
appropriate form. However BO can give standing instruction for credit to his
account that will obviate the need of giving Receipt Instruction every time.

In case of sale:-

BO will give delivery instruction through Delivery Instruction Slip (DIS) to DP to

debit his account and credit the brokers account. Such instruction should reach
the DPs office at least 24 hours before the pay-in, failing which; DP will accept
the instruction only at the BOs risk.

29
ADVANTAGES OF DEPOSITORY SYSTEM

Share certificates, on dematerialization, are cancelled and the same will not be
sent back to the investor. The shares, represented by dematerialized share
certificates are fungible and, therefore, certificate numbers and distinctive
numbers are cancelled and become non-operative.
eliminating the paper work involved in scrip-based trading and share transfer
system.
Transfer of dematerialized securities is immediate and unlike in the case of
physical transfer where the change of ownership has to be informed to the
company in order to be registered as such, in case of transfer in dematerialized
form, beneficial ownership will be transferred as soon as the shares are
transferred from one account to another.
The investor is also relieved of problems like bad delivery, fake certificates,
shares under litigation, signature difference of transferor and the like.
There is no need to fill a transfer form for transfer of shares and affix share
transfer stamps.
There is saving in time and cost on account of elimination of posting of
certificates.
The threat of loss of certificates or fraudulent interception of certificates in
transit that causes anxiety to the investors, are eliminated.

30
DISADVANTAGES OF DEPOSITORY SYSTEM

Some disadvantages were about the depository system were known beforehand.
But since the advantages outweighed the shortcomings of dematerialisation, the
depository system was given the go-ahead.

Lack of control: Trading in securities may become uncontrolled in case

of dematerialized securities.
Need for greater supervision: It is incumbent upon the capital market
regulator to keep a close watch on the trading in dematerialized securities
and see to it that trading does not act as a detriment to investors. The role
of key market players in case of dematerialized securities, such as stock
brokers, needs to be supervised as they have the capability of manipulating
the market.
Complexity of the system: Multiple regulatory frameworks have to be
confirmed to, including the Depositories Act, Regulations and the various
Bye Laws of various depositories. Additionally, agreements are entered at
various levels in the process of dematerialization. These may cause
anxiety to the investor desirous of simplicity in terms of transactions in
dematerialized securities.
Besides the above mentioned disadvantages, some other problems with the
system have been discovered subsequently. With new regulations people

31
 are finding more and more loopholes in the system. Some examples of the
malpractices and fraudulent activities that take place are:
Current regulations prohibit multiple bids or applications by a single
person. But investors open multiple demat accounts and make multiple
applications to subscribe to IPOs in the hope of getting allotment of
shares.
Some listed companies had obtained duplicate shares after the originals
were pledged with banks and then sold the duplicates in the secondary
market to make a profit.
Promoters of some companies dematerialised shares in excess of the
companys issued capital.
Certain investors pledged shares with banks and got the same shares
reissued as duplicates.
There is an undue delay in the settlement of complaints by investors
against depository participants. This is because there is no single body that
is in chargeof ensuring full compliance by these companies.

32
RESEARCH METHODOLOGY

This chapter describes the research methodology adopted for the study. It includes
methodology and limitation of the studies

1. Research plan: to meet the objectives of the studies undertaken, the

descriptive respondents were adopted.
2. data sources:
a) Primary data
b) Secondary data

Primary data:

In this study questionnaire and personal interview methods have been used for
receiving primary data.

Secondary data:

In this study information from various website has been used. Thus include going
through various research projects.

3. Research Approach: survey research was adopted

4. Research instruments: Questionnaire was used to interview the respondents. A

judicious mix of open needed and close-ended question was used.

5. Sampling plan:

33
 Sampling unit: It consists of investors, brokers etc.
Sampling size: 100 respondents were selected
Sampling procedure: To obtain representative sample, non-
sampling procedures were adopted. Sampling was done to
silent the most accessible population.
Contact method: The respondents were personally
interviewed.
Analysis method: The data was tabulated and frequency
distribution was developed. The percentages are computed
for different variables.

34
RESEARCH AND
DISCUSSION

35
Research and Discussion
The analysis of collected facts and figures through questionnaire is detailed as
under:

QUES. 1: Do you know about depository system?

ANS:
Options No. of respondent

Yes 94%

No 06%

36
Ques.2: Do you have demat account?

Ans: no. of
respondent
Yes 70%

No 30%

37
 Inference: From the sample size of 100, 70 respondents having their depository
account.

Ques.3: Do you satisfied with the fee structures of Depository Participant?

No. of respondents

Ans :

Options No. of respondent percentage

Yes 30 50%

No 22 31%

Up to some extent 18 19%

38
Inference: out of 70 respondents, 50% respondents are satisfied,31% are not
satisfied and 19% respondents are satisfied upto some extent with the fees
structure of Depository Participant

Ques.4: What were the criteria for choosing the DP:

Ans:
Options No. of respondent percentage

Distance convenience 17 24

Service level 22 31

Charges 20 28

Reputation 11 17

39
Inference: There is a close response from the respondents,31% respondents are
choosing their DP from the services provided by them and 28% are choosing by
the charges

Ques.5: Do you have individual account or with company?

Ans

Types No. of respondent(%age)

Individual 40%
Company 60%

40
Ques.6: Who can make a request for the demat of the security?

Ans :
Types No. of respondent %age

Company 7 10

Registered holder of the 29 43

company

Depository 15 20
41
Depository participant 19 27

Ques.7 : Is there any grievance to parties for NSDL?

Ans :

Options NO. OF RESPONDENT

YES 30%
NO 70%

42
Ques.8: How much time period is given to the parties to resolve their grievances
for NSDL?

Ans:

43
DAYS NO. OF RESPONDENT PERCENTAGE

30 DAYS 15 21%

21 DAYS 34 48%

45 DAYS 15 22%

25 DAYS 6 9%

Inference: 48% respondents replied for the ii) option which is right.

Ques.9: In case of partnership firm account will be open in the name of:

ANS:

44
OPTIONS NO. OF RESPONDENT %AGE

MAXIMUM HOLDING 37 39
PARTNER

ANY AUTHORIZED 36 37
PARTNER

FIRM 27 24

Inference:The respondents are also not too much aware about this question,the
percentage of any authorized partner is less than the percentage of maximum
holding partner

QUES.10: From which depository participant you make trading?

45
a) Sharekhan
b) India bulls
c) Reliance
d) ICICI direct.com
e) Others

Sharekhan 07
India Bulls 11
Reliance 14
ICICI direct.com 08
Others 10

46
QUES.11: If your selected trading company increases their annual charges will
you go with it?

Ans:

YES 02

NO 29

IF CHARGES ARE 19
REASONABLE

47
QUES.12: According to you which one is the most important factor for trading
company to enhance loyalty and customer?

A) Provide maximum profit

B) Provide tips time to time
C) No hidden charges
D) Other factors

Provide maximum profit 17

Provide tips time to time 08

No hidden charges 18

Other factors 07

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Ques13: Preferred Portfolio by Investors

Ans:
Portfolio No. of Investors
Equity 46%

Debt 17%
Balanced 37%

From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and
17% preferred

Debt portfolio

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FINDINGS

1. It is found that the most of people know about depository system.

2. It is found that the many people have their demat account.
3. It is found that the many people have an account with company.
4. It is found that most of parties have no grievances for NSDL.
5. It is found that many people know about the demat securities.
6. It is found that many people disagree with the increasing the annual
charges of trading company.
7. It is found that many customers dont want hidden charges for trading
company.
8. It is found that many investors preferred the equity portfolio.

50
CONCLUSION

To conclude, it can be said that the research findings clearly reveal the goodwill
and reputation of depository system among the customers. But there is a need to
strengthen this depository system by spreading awareness about the services
offered by NSDL, CSDL and its trading companies through advertisement and by
expanding the more branches of this system all over the country and also by
tapping the potential customers through innovative means.

51
BIBLOGRAPHY

Sites:-

www.lse.co.in

www.nsdl.co.in

www.cdslindia.com

Referred Books:-

Financial institutions and markets- L.M. Bhale

Research methodology-Mohit Gupta, Navdeep Aggarwal

Financial services- Shashi k. Gupta, Nisha Aggarwal

52
Introduction to Topic
1.1 Meaning of Depository
Depository -: A bank or company which holds funds or securities deposited by
others, and where exchanges of these securities take place.
A place where things are stored
On the simplest level, depository is used to refer to any place where something is
deposited for storage or security purposes. More specifically, it can refer to a
company, bank or an institution that holds and facilitates the exchange of
securities. Or a depository can refer to a depository institution that is allowed to
accept monetary deposits from customers.
A depository in a simple term means a place where something is deposit for
storage and security, however in our capital market, this term has a lot of
relevance, we define
Depository as an institution that works like bank
A Depository (NSDL & CDSL) in an organization like a Central Bank where the
securities of a shareholder are held in the electronic form at the request of the
shareholder through the medium of a Depositary Participant.
If an investor wants to utilize the services offered by a Depository, the investor
has to open an account with the Depository through a Depository Participant.
The depository based settlement system is also called Book Entry Transfer
settlement. It functions as a custodian of securities of its clients. The name of the
depository appears in records. With the increase in the numbers of transactions in
stock market, it had become difficult for the investors to hold share certificates
and debt instruments in bulk. But now depository instructions handle this job.
At present there are two depositories in India, these are:
1. National Security Depository Limited (NSDL)
2. Central Depository Services Limited (CDSL)

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3.1 National Securities Depository Ltd (NSDL)

54
Although India had a vibrant capital market. Which is more than a century old;
the paper-based settlement of trades caused substantial problems liked bad
delivery and delayed transfer of title till recently. The enactment of Depositories
Act in August 1996 approved the way for establishment of NSDL, the first
depository in India.

NSDL was the first depository organization promoted by IDBI, UTI, and National
Stock Exchange (NSE). NSDL was setup to provide electronic depository
facilities for securities being traded in capital market.
The depositorys ordinance was promulgated by the government of India in
September 1995. The Securities and Exchange Board of India (SEBI) issued
guidelines for depositories in May 1996.
NSDL has minimum net worth of Rs. 100 crores. NSDL deals with shares in
dematerialized form through depository participants who are agents of investor
banks, stockbrokers and financial institutions. NSDL Depository Participant can
be a public financial institution, bank, custodian, registered stockbroker or a non-
banking financial company subject to the approval from the Depository Company
and SEBI. NSDL aims at ensuring the safety and soundness of Indian capital
market by developing settlement solutions that increase efficiently, minimize risk
and reduce costs.

3.1.1 Incorporation
National Securities Depository Limited was the depository to be set-up in India. It
was incorporated on December 12, 1995. The Industrial Development Bank of
India (IDBI)-the largest development bank in India , Unit Trust of India(UTI)-the
largest Indian mutual fund and the National Stock Exchange (NSE)-the largest
stock exchange in India, sponsored the setting up of NSDL and subscribed to the
initial capital. NSDL commenced operation on November 8, 1996.

3.1.2 Promoters

55
 Industrial Development Bank of India Limited
Unit trust of India
National Stock Exchange of India Limited
State Bank of India
Oriental Bank of Commerce
Citibank
Standard Chartered Bank
HDFC Bank Limited
The Hong kong and Shanghai Banking Corporation Limited
Dena Bank
Canara Bank
Union Bank of India

3.1.3 Ownership
NSDL is a public limited company incorporated under the Companies Act
1956.Its net worth is above the Rs. 100 crore, as required by SEBI regulations.

3.1.4 Management of NSDL

NSDL is a public limited company managed by professional board of directors
.The day to day operations are conducted by the Chairman and Managing
Directors (CMD).
To access the CMD in his functions, the board appoints an Executive Committee
(EC) of not more than 15 members. The eligibility criteria and period of
nomination, etc are governed by the Bye-laws of NSDL in this regard.

3.1.5 Business Rules of NSDL

NSDL rules require the approval of NSDL Executive Committee and filing of the
same with SEBI at least a day before the effective data for the amendments.

3.1.6 Bye laws of NSDL

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Byelaws of National Securities Depository Limited have been framed under
powers conferred under section 26 of the Depositories Act, 1996 and approved by
Securities and Exchange Board of India.
Faster settlement cycle- The settlement cycle follow rolling settlement on T+2
bases i.e. the settlement of trades will be on 2nd working day from the trades
day. This will enable faster turnover of stock and more liquidity with the
investor.
Reduction in brokerage by many brokers for trading in Dematerialised
securities
Brokers provide this benefit to investors as dealing in dematerialized securities
reduces
their back office cost of handling paper.
Reduction in handling of huge volumes of paper periodic status reports to
investors on
their holdings and transactions, leading to better controls.
Elimination of problems related to change of address of investor- In case of
change of address, Investors have to only inform their DP with all relevant
documents and the required changes are effected in the database of all the
companies, where the investor is a registered holder of securities.
Elimination of problems related to selling securities on behalf of a minor- A
natural guardian is not required to take court approval for selling demats
securities on behalf of a minor.

3.1.7 Various Checks and Protection measures in the Depository System

There are various checks and measures in the depository system to ensure safety
of the investor holdings. In 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 holding in the name of the holding in the name of the clients of the DP. These
investors can transfer their holdings to an account held with another DP.
The data interchange between NSDL and its business partners is protected by
protection measures of international standard such as encryption hardware lock.

57
The protection measures adopted by NSDL are more than what is prescribed in
the SEBI Regulations.

Freeze Facility: A depository account holder (benefits account) may freeze

securities lying in the account for as long as the account holder wants it.
By freezing the account, account holder can prevent unexpected debits or both,
creeping into its account. The following types of freeze facility available in the
NSDL system may be availed of by submitting freeze instruction to the
prescribed form.
Freeze for debits only
Freeze for debits as well as credits
Certification in Depository Operations: NSDL has introduced a
Certification Programme in Depository Operations (popularly known as NCFM
certification), and it has been made compulsory for all DPs to appoint a person
qualified in this certification in each of its branches. This way, NSDL wants to
ensure that each branch of a DP that services investors has at least one person
who has thorough knowledge about depository system. (NCFM stands for
NSEs Certification in Financial Markets).
Investor grievance: All grievances of the investors are to be resolved by the
concerned business partner. The investor relationship cell of NSDL would work
towards resolution of the grievance.
Insurance Cover: NSDL has taken a comprehensive insurance policy to help
DP to indemnifying investors for the loss accrued to them due to errors,
omissions, commissions or negligence of DP.
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.
Periodic Review: The NSDL hardware, software and communication system
are continuously reviewed in order to make them more secure and adequate for

58
 the size of business. These reviews are a part of an ongoing exercise wherein
security considerations are given as much importance as operational efficiency.

3.1.8 Charges
NSDL provides depository services to investors and clearing members through
market intermediaries called Depository Participants (DPs). NSDL does not
charge the investors and clearing members directly but charges its DPs, who are
free to have their own charge structure for clients. NSDL charges to DPs are
uniform for all DPs.
Pledge fee: A fee at the rate of Rs. 25 instruction for creation of pledge shall
be charged to the Participant of the pledge. No fee shall be charged when a
pledge is closed or invoked.
Lending and Borrowing fee: A fee at the rate of Rs. 25 per instruction shall
be charged to the Participant of the borrower in respect of credit of securities to
the account of the borrower. No fee shall be charged at the time of repay or
recall of securities.
Custody: Nil
Fee for Dematerialization and rematerialisation: No fee charged by the
depository for dematerialization of securities. Participant shall be charged the
following fee for rematerialisation of securities: a fee of Rs.10 for every
hundred securities.
Security Deposit: Every Participant shall pay to the Depository Rs. 10 lakh by
way of interest free refundable security deposit. However, a Clearing
Corporation or a Clearing House of a Stock Exchange will be exempt from
payment of security deposit.

3.1.9 Functions of NSDL

NSDL performs the following functions through DPs:
a) Enables the surrender and withdraw of securities from the depository.
b) Maintains investor holding in the electronic form.
c) Effects settlement of securities traded on the exchange.

59
 d) Carriers out settlement of trades not done on the stock exchanges (off market
trades).
e) Transfer of securities.
f) Pledging/hypothecation of dematerialization securities.
g) Electronic credit in public offering of corporate actions.
h) Receipts of non cash corporate benefits like bonus rights, etc. in electronic
form.
i) Stock lending and borrowing.
3.1.10 Services Offered By NSDL
NSDL offers a host of services to the investors through its network of DPs:
a) Maintenance of beneficiary holding through DPs.
b) Dematerialization.
c) Off-market trades.
d) Settlement in dematerialized securities.
e) Receipt of allotment in the dematerialized form.
f) Distribution of corporate benefits.
g) Re-materialization.
h) Pledging and hypothecation facilities.
i) Freezing/locking of investors account.
j) Stock lending and borrowing facilities.
3.2 System View of NSDL Depository System:
Account holders (investors) open account with the DPs. The account details,
entered in a computer system maintained by Depository Participants called
DPM, are electronically conveyed to the central system of NSDL called DM.
Companies who have agreed to offer demat facility to their shareholders use a
computer system called DPM (SHR) to connect to the NSDL central system.
DPM (SHR) may be installed by the company itself or through its R&T Agent.
This system is used to electronically receive demat requests, confirm such
requests or to receive beneficial owner data (Benpos) from the depository.
Stock exchanges receive pay-in (receiving securities against sales made by
brokers) or to payout (giving securities to brokers against their purchases) using

60
 a computer system connected to NSDL called DPM (CC). All the computer
systems installed by DPs (DPM-DP), companies (DPM-SHRs), and stock
exchanges (DPM-CC) are connected to NSDL central system (DM) through V-
SAT (very small aperture terminal) or leased lines. These are collectively called
Business Partner Systems. Any transaction conducted by any computer system
in the NSDL depository system which is targetted to reach any other computer
system first gets recorded in DM and then will reach the target. No two business
partners' systems can communicate to each other without passing through the
DM.

3.3 Maintenance of Accounts at the Central System:

The NSDL central system known as DM maintains accounts of all account
holders in the depository system. All the transactions entered at any point in the
computer system connected to it are first effected in the central system and
subsequently at these computers. Thus, the central system of NSDL has the
records of all details of every transaction conducted in the depository system.

3.3.1 Distributed Database:

Each of the computer systems connected to NSDL system has its own database
relating to its clients. This helps in giving prompt and accurate service to the
clients. However each of the databases is reconciled with the data at the central
system everyday in order to ensure that the data in the distributed database
tallies with the central database.

3.3.2 Common Software:

NSDL develops software required by depository participants, companies, R&T
Agents and clearing corporations for conducting depository operations. Thus,
the computer systems used by all the entities will have common software given
by NSDL. However, depending on the business potential, branch networks and
any other specific features, DPs may develop software of their own for co-

61
 ordination, communication and control and provide service to their clients. Such
exclusive software is called "back office software". DPM system given by
NSDL gives "export and import" facility to take out the transaction details to be
used by back office software and to feed in transaction details generated from
the back office software.

3.3.3 Connectivity:
The computer system used by DPs, companies, R&T Agents and stock
exchanges may be connected to NSDL central system through V-SAT network
or leased line network. NSDL uses NSE's V-SAT network for the connectivity
purposes. Thus, V-SATs used by NSE brokers can connect to NSDL if the
software supplied by NSDL is used. V-SAT uses satellites for communication
purposes. Some business partners may connect using leased lines provided by
MTNL/ BSNL. V-SAT or leased line connections are called primary
connectivity. If primary connectivity fails for any reason, BPs must have the
ability to connect through other means. Such other means are PSTN lines, ISDN
lines, POP lines (normal telephone lines) through which they can dial in to the
NSDL system and conduct their transactions.

3.4 Central Depository Services Limited (CDSL)

Central Depository Services Limited (CDSL) is second depository in India, is
setup to meet the objective the Act and to fulfill the users need. CDSL is secured
Certificate of Commencement of business on Feb 8, 1999 from SEBI. The
balances in the investors account recorded and maintained 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 face, forged, counterfeit resulting in bad
deliveries. CDSL offers an efficient and instantaneous transfer of securities.

62
CDSL was promoted by Bombay Stock Exchanged Limited (BSE) jointly with
landing banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC
Bank, Standard Chartered Bank and Union Bank of India and Centurion Bank.

3.4.1 Objectives of CDSL

To make major trust in the individual investors participant in the
depository system.
To create a competitive environment which will be responsive to users
interest and concerns.
To providing convenient, dependable and secure depository services at
affordable cost to all market participants.

3.4.2 Incorporation
CDSL was the Second depository to be set-up in India. It was incorporated on
Feb, 1999.The Bank of India, Bank of Baroda and the Bombay Stock Exchange
(NSE)-the largest stock exchange in India, sponsored the setting up of CDSL and
subscribed to the initial capital. CDSL commenced on Feb. 8, 1999.

3.4.3 Promoters/ Owners

CDSL is a well-established institution, with its owners and promoters being
Indias leading banks and Bombay Stock Exchange Limited. CDSL was promoted
by BSE in association with Bank of Baroda, Bank of India, State Bank of India,
and HDFC Bank. The list of shareholder is as under:
Name of Shareholders
Bombay Stock Exchange Limited
Bank of India
Bank of Baroda

63
 State Bank of India
HDFC Bank Limited
Standard Chartered Bank
The Centurion Bank Ltd.
Canara Bank
Union Bank of India Bank of Maharashtra
Jammu and Kashmir Bank Ltd.
Calcutta Stock Exchange Association

3.4.4 Ownership
CDSL is public limited company incorporated under the Companies Act 1956 .Its
net worth is above the Rs.100 crore, as
required by SEBI regulations.

3.4.5 Benefits of opening an account with CDSL

Wide DP Network: CDSL has over 375 DPs spread across 124 cities/towns
across the country, offering convenience for an investor to select a DP based on
his location.
On-line DP Services: The DPs are directly connected to CDSL thereby
providing on-line and efficient depository service to investors.
Wide Spectrum of Securities Available for Demat: Over 5500 issuers have
admitted their securities in CDSL consisting of Public (listed & unlisted)
Limited and Private Limited companies. These securities include equities,
bonds, units of mutual funds, Govt. securities, Commercial papers, Certificates
of deposits; etc .Thus an investor can hold almost all his securities in one
account with CDSL.
Competitive Fees Structure: CDSL has kept its traffic very competitive to
provide affordable depository services to investors.
Internet Access: A DP, which registered itself with CDSL for internet access,
can in turn provide demat account holders with access to their account on the
internet.
64
 On-line Information to Users: CDSLs system is built on centralized
database architecture and thus enables DPs to provide on-line depositary
services with the latest statues of the investors account.
Convenient to DPs: The entire database of investors is stored centrally at
CDSL. If there is any system-related issues at DPs end, the investor is not
affected, as the entire data is available at CDSL.
Meeting Users Requirements: Continues updation of procedures and
processes in tune with evolving market practices is another hallmark of CDSLs
services.
Audit and Inspection: CDSL conducts regular audit of its DPs to ensure
compliance of operational and regulatory requirements.
Helpdesk: DPs and investor can obtain clarifications and guidance from
CDSLs prompt and courteous helpline facility.
Computer system: All data held at CDSL and is automatically mirrored at the
Disaster Recovery site and is also backed up and stored in fireproof cabinets at
the main and disaster recovery site.
Unique BO Account Number: Every BO in CDSL is allotted a unique
account number which prevents any erroneous entry or transfer of securities if
the transferors account number is wrongly entered, the transaction will not go
through the CDSL system, unless corrected.
Insurance Cover: CDSL has an insurance cover in the unlikely event of loss
to a BO due to the negligence of CDSL or its DPs.

3.4.6 Fees
Monthly charges for DPs or its branches w.e.f. 1st May, 2006 for Main DPs:
Rs. 3,000/- per month or the amount of the actual bill for a given month
whichever is high.
For DP-Branches: Rs. 2,000/- per month or the amount of the actual bill for a
given month whichever is higher.
Fees for Clearing Members: CDSL collects only Rs. 500/- per month from its
DPs for a CM.

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3.5 Demat Account
Demat account is mandatory for trading and investing of shares. Demat refers to
dematerialized account. Demat Account is a safe secure and convenient way
where you can buy and sell the shares without any paper work and all the things
will be taken care by the DP (Depository participants). If you have dematted
account you need not to show any kind of physical certificate that you have these
shares. They held automatically in your account. DP will also provide you
monthly statement of your transaction just like a bank statement.
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.
A demat account is opened by the investor while registering with an investment
broker (or sub-broker). The demat account number is quoted for all transactions to
enable electronic settlements of trades to take place. Access to the demat account
requires an internet password and a transaction password. Transfers or purchases
of securities can then be initiated. Purchases and sales of securities on the demat
account are automatically made once transactions are confirmed and completed.
This account is popular in India. 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).

3.5.1 Importance of Demat

The demat account reduces brokerage charges, makes pledging/hypothecation of
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

66
forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account
holders can also avoid stamp duty (as against 0.5per cent payable on physical
shares), avoid filling up of transfer deeds, and obtain quick receipt of such
benefits as stock splits and bonuses.
SEBI has made compulsory trading of shares of all the companies listed in stock
exchanger in Demat form with effect from 2nd Jan 2002. Hence, if the investors
want to trade in respect of the companies which have established connectivity
with NSDL & CDSL, he may have to open a beneficiary a/c with a Depository
Participant of his choice. The procedure of opening a Demat a/c with DP is
similar to open an account with bank.

3.5.2 Features of Demat accounts:

Number of Accounts: More than one demat accounts can be opened in the
similar/ identical name and order with the same DP or different DPs.
Minimum Account Balance: There is no requirement of holding minimum-
security balance in a demat account; you can maintain zero balance in your
account.
Nomination: Individuals holding beneficial accounts on their own behalf
either singly or jointly have the facility of making nomination. (Non-individuals
including societies, trusts, body corporate, partnership firms, kartas of HUF,
holders of power of attorney however, cannot nominate). In the event of the
death of one of the joint holders, the securities will be transmitted in the names
of the surviving holders
Statements of Account: A periodical statement of holdings and transactions is
provided by DP.
Credit Confirmation: In order to receive all the credits coming to demat
account automatically, one time standing instruction can be given to the DP at
the time of opening your account.
Change of Address: For any change of address, if any, communication to your
DP in writing is sufficient. The DP will ensure that the change is incorporated

67
for all securities held in yours demat account. You need not to write to all the
companies separately.
All the above benefits provide the convenience, dependability and security to
the investors.

3.5.3 Procedure for Opening A Demat Account

The process of opening a demat account through a DP of CDSL is simple and
easy. It is similar to the opening of a bank account. An investor has to first
choose a DP based on his convenience and the DPs charges
Fill account opening form (available with your DP).
Give your DP the duly filled account opening form with introduction
documents as may be required.
Sign agreement with DP (agreement will state rights & obligations of both
parties). The agreement will contain the fee structure of your DP. Your DP
would give you a copy of this signed agreement for your record.
DP would give you Client Id no. (Account no.) Once your depository
account is opened. This Client Id no. along with your DP Id no. forms a unique
combination. Both these nos. should be quoted in all your future correspondence
with DP/NSDL / Issuing Company/their registrar & transfer (R&T) agent
Your DP would give you pre-printed instruction slips for depository
services viz., dematerialization, delivery instruction for trades, Preserve these
carefully.
Your DP would give you a list of deadlines for giving instructions for
various depository activities viz., transfer for effecting sale, purchase etc. If not,
check with the DP.
A demat account can be opened and maintained even with nil balance.

Multiple accounts
An investoralready having a demat accountcan open another account with
any other CDSL depository participant. There is no restriction on number of
demat accounts which an investor can open.

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No opening charges
According to SEBI, investors should not pay any account opening charges,
besides the statutory charges.

Number of account holders

A demat account can be opened in the name of a single holder account or a joint
holder account. A demat account can have maximum three account holders i.e.
one main holder and two joint holders.

Modification in names
Once a demat account is opened addition/modification/deletion of account
holder names is not permitted.
You cannot add your last name (surname), to your demat account because
making changesto the existing demat a/c are not allowedaccording to
CDSL.
Even in case of marriage or divorce, an investor cannot make changes to the
name mentioned in his/her demat account. You have an option to close your
current demat account and open a new demat account (adding your full name).

3.5.4 Demat Account Opening fees

Few banks will not charge you the demat account opening fees, but there is
some annual maintenance charges as well as transaction charges on Demat
account

Custodian fee
Custodian fees depends on the number of securities and this fees is charged
monthly (international securities identification numbers ISIN) held in the
account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month.

69
 DPs will not charge custody fee for ISIN on which the companies have paid
one-time custody charges to the depository.

Transaction fee
On a monthly basis transaction fees is charges for crediting/debiting securities
from the account. The fee also based on the kind of transaction (buying or
selling). Some DPs charge only for debiting the securities while others charge
for both. The DPs also charge if your instruction to buy/sell fails or is rejected.
In addition, service tax is also charged by the DPs.

3.5.5 Requirements for Opening a Demat A/c

1. The first and foremost step is to approach DP or depository participant with
whom Investor want to open your Online Demat Account. Like a bank or broker,
depository participant acts like an agent between the investor and depository.
2. Secondly, Investor will have to fill up online demat account opening form and
attach documents for proof of your identity and address. The documents that
investor will need are: PAN Card, Any identity proof (like voters id, driving
license, passport etc), any residence proof (like ration card, driving license, etc),
and Self attested passport size photograph.

3.5.6 Documents Required For Demat Account

To open a Demat account Investor have to provide documents which fulfill the
requirements of KYC (Know Your Customer) norms. Investor has to sign a
contract with Stock broker. Generally the documents are:
PAN (Compulsory)
Bank statement (last 6 months)
One cancelled cheque
Address Proof
Two colour photos

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Investor will have to sign a pact with your depository participant in which all the
rules and regulations will be written to be followed by the investor and DP both.
DP will give investor the copy of the agreement.
Once the agreement is signed and the verification of Investor documents will be
done, in about 15 days you will get investors online demat account number. It is
also known as BO ID that is beneficiary owners identification number. All
investors future transactions will be done with this ID.
Now that investor own a demat account, investor can step into the world of stock
exchange and start investing money in mutual funds, shares, debentures,
insurance, retirement funds etc.
It should be noticed that unlike every bank account where everyone have to keep
a minimum balance, demat account does not require you to have a minimum
number of securities. Investor can open a Demat account with zero amounts and
also need not to have any minimum balance to maintain the account. Investor may
have zero balance in your online demat account.

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3.5.7 Demat Account Charges-
There are mainly 5 types of Charges that are levied on Demat Accounts.
1. Demat Account Opening Charges Depending on the DP, there may or may
not be an opening account fee. . Private banks, such as HDFC Bank and AXIS
Bank, do not have one. However, players such as Kotak Securities, Sushil
Finance, ICICI Bank, Globe Capital, Karvy Consultants and Bajaj Capital

72
Limited do impose an opening fee. State Bank of India does not charge any
account opening charge while other maintenance and transaction charges apply.
Most players levy this when re-opening a demat account. However, the Stock
Holding Corporation offers a lifetime account opening fee, which allows the
investor to hold on to his/her demat account for a long period. The fee is also
refundable.
Usually the Demat Account is opened Free of Cost and No Charges are levied on
the same. However, they may collect annual charges upfront at the time of
opening a Free Demat Account. Not all Banks/DPs provide free Demat Accounts
and it is always advisable to check the account opening charges before opening a
Demat Account.

2. Annual Maintenance Fee

This charge is mainly folio maintenance charge which is levied well in advance. If
they are offering you good services, the Maintenance Fee would be high, else it
would be low.

3. Custodian Fee
The Custodian Fee is charged for safely keeping investors Shares in the Demat
Account and is charged based on the number of securities in investors account.
This is generally charged yearly and majorly depends on the number of securities
in the Demat account. It may vary from Rs. 0.5 to Rs. 1 per ISIN (number of
securities) for a month.

4. Transaction Fee/ Brokerage

The Transaction Fees is the fee which is charged for trading of shares. Whenever,
investor buy or sell a security, a brokerage would be payable by investor which
would depend on the scheme investor have opted for, as the charges vary from
Scheme to Scheme.

5. Dematerialization Fee

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In case investor has share certificates in physical form, the bank would also be
charging you a very nominal fee to convert these physical shares into online form.
These Charges are not applicable for all Account Holders and are applicable only
for those who have Physical Shares and opt for converting these Physical Shares
(if any) into Demat Form.
Investor may note that these charges may not remain same every month as DP can
also revise them. It is always highly advisable for the Investor to cross check the
Account Charges levied by different Service Providers before opening a Demat
Account.

3.5.8 INFORMATION NEEDED FOR DEMAT ACCOUNT

An investor has to give his bank account details at the time of account opening. It
is for the protection of investors interest. The bank account number will be
mentioned on the interest or dividend warrant, so that such warrant cannot be
encashed by anyone 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. An
investor can change the details of his bank account. 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. An Investor should immediately inform his/her DP if the
address of the investor changes, who in turn will update the records. This will
obviate the need of informing different companies. An investor can open more
than one account in the same name with the same DP and also with different DPs.
An investor has not to keep any minimum balance of securities in his/her
accounts. Depository / DP can be chosen by investor as per convenience
irrespective of the DP of the broker. The demat account must be opened in the
same ownership pattern such as securities owned individually in which the
securities are held in the physical form. e. g. if one share certificate is in the

74
individual name and another certificate is jointly with somebody, two different
accounts would have to be opened.

3.6 STEPS INVOLVED IN THE PROCESS OF

DEMATERIALISATION
Client submits the Demat Request Forms to the Depository Participant
alongwith the share certificates.
On submission of DRF by client .DP will check list of high demat
pendency companies name from Depository web site.
DP will inform the client to deface the share certificates with two punch
holes on the name of company with surrender for demateraliation stamp
with DP ID and Client Id stamp of Share Certificate.
DP lodges the request of the client in the Depository system and generates
the Demat Request Number (DRN).
The DRN is electronically transmitted to the registrar through depository
system and the details of the DRN are available with the registrar.
DP has to send demat shares with DRF form to registrar and transfer
agents with 7 days from the date of DRF received at Head Office or at
Branch.
The registrar upon receipt of shares from the DP tallies the physical shares
received along with the electronic request lodged by the DP with
Depository. The signature of the client as per the records of the registrar is
also checked and if the signature and the details of the share certificates
are found to be in order, the registrar dematerialises the shares and
confirms credit to Depository.

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 The client's account with the DP is updated with the quantity of shares
submitted for demat.

3.6.1 Buying and Selling of Dematerialization

The procedure for buying and selling dematerialized securities is similar to the
procedure for buying and selling physical securities. The difference lies in the
process of delivery (in case of sale) and receipt (in case of purchase) of securities.

In case of purchase:-
The broker will receive the securities in his account on the payout day
The broker will give instruction to its DP to debit his account and credit
investors account
Investor will give Receipt Instruction to DP for receiving credit by filling
appropriate form. However one can give standing instruction for credit into ones
accounts that will obviate the need of giving Receipt Instruction every time.

In case of sale:-
The investor will give delivery instruction to DP to debit his account and credit
the brokers account. Such instruction should reach the DPs office at least 24
hours before the pay-in as otherwise DP will accept the instruction only at the
investors risk

3.7 Rights
Dematerialized securities can be traded on those stock exchanges connected to
NSDL. At present, NSE, BSE, CSE, DSE, LSE, BGSE, OTCEI, MSE, ISE &
ASE are connected to NSDL. At these stock exchanges, two segments would be
available to trade in dematerialized securities:
Unified (erstwhile physical) segment: - In this segment delivery obligation can
be met by delivering dematerialized or physical securities at the option of the
seller. However, for a select list of securities prescribed by SEBI, securities cannot
be delivered in physical form in the unified segment, of stock exchanges

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connected to NSDL. This list presently covers 160 securities. This list has been
expanded to cover a total of 200 securities with effect from January17, 2010. Over
a period, this list would cover all actively traded securities.
Exclusive demat segment:-In this segment delivery obligation can be met by
delivering dematerialized securities only. Physical securities cannot be delivered
in the exclusive demat segment.
(a) Buy dematerialized securities
You purchase securities in any of the stock exchanges connected to NSDL
through a broker of your choice and make payment to your broker. Make sure you
tell your broker you want only demat shares.
Broker arranges payment to clearing corporation/ clearing house of the stock
exchange.
Broker receives credit in his clearing account with his DP on the pay-out day. He
can immediately transfer these securities to your depository account, provided
your account is already active.
Broker gives instructions to his DP to debit his clearing account and credit your
depository account.
You give instruction to your DP for receiving credit in your depository account.
If you have given standing instruction to receive credits, no separate instruction
for receiving credit will be required.
If the instructions match, your account with your DP is credited.

(b) Sell dematerialized securities

You sell your dematerialized securities in any of the stock exchanges linked to
NSDL through a broker of your choice.
You give instruction to your DP for debit of your depository account and credit
of your brokers clearing member account at least 24 hours i.e. one working day
prior to the pay-in date or before the deadline prescribed by your DP, so that your
brokers clearing account is credited data the time arranged with him.
On the pay-in day, your broker gives instruction to his DP for delivery to
clearing Corporation/clearing house of the relevant stock exchange.

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The broker receives payment from the Clearing Corporation / clearinghouse.
You receive payment from the broker for the sale in the same manner you would
receive payment for a sale in the physical mode.

Points to Remember
Trading continues to be through brokers. In case of any problem in
execution of trade, contact your broker and if he fails to resolve the problem you
may contact the stock exchange.
When you buy securities through the stock exchange, your brokers
clearing account is credited to the extent of the securities purchased, on receipt of
instruction from clearing corporation/ clearing house of the stock exchange. Your
depository account is credited only when your broker gives a delivery instruction
to his DP.
Securities are not directly credited to your account by the clearing
corporation/ clearing house of the stock exchange. In case your broker does not
give a delivery instruction, contact him or concerned stock exchange or SEBI. If
your depository account is not credited, in spite of your broker giving valid
instruction to his DP, contact the DP and if he fails to resolve the same you may
contact NSDL.
When you sell securities, you have to give a delivery instruction to your
DP to transfer the securities to your brokers clearing account. They are not
automatically debited from your account by NSDL or by the clearing corporation/
clearing house of the stock exchange. In case before the deadline prescribed by
DP. In case the DP fails to resolve your problem, you can contact NSDL. The DP
defaults in executing your instruction, the DP is liable to compensate you for the
loss incurred, provided your instruction was in order and has been submitted to
the DP at least 24 hours i.e. one working day prior to the pay-in date or before the
deadline prescribed by your DP.

3.8 Online trading

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Change is the law of nature. There were times when man was a Wanderer or a
normal. He himself had to go place to place in search of food, water and now
everything is available at your doorstep just at the click of the mouse. The growth
of information technology has affected almost all sectors of life. Internet has
enabled us to get every information at our doorstep.
When Internet has affected all sectors he could stock markets the most
important player of the economy, has remained far behind? Like all other sectors
Internet has set its feet in the stock markets also. The Stock Market system
provides single, nationwide securities. It enables LAN investors in one part of the
country to trade at the best quotes with an investor located in any other part of the
country through the members of the stock exchange and subsequently clears and
settle the trade in an efficient and cost effective manner. The primary objective of
the Stock Market is to provide clear opportunity to the investors throughout the
county trade any security irrespective of the size of the order or the broker
through whom the order is routed. This provides the facility to execute the buy
order at the lowest price in the stock market located anywhere in the country
without any extra cost to the investors. There will be no trading floor in the
exchange. Instead, each trading member will have a computer at his own office
anywhere in India which will be connected to the central computer system at the
NSE through leased line or VSATs (very small aperture terminals), subsequently
by satellite link. VSATs are relatively smaller dishes similar to dish antenna for
cable TV & have the benefit of not being very expensive. A satellite network
makes it possible to connect almost all the parts of the nation quickly as it is easy
to install, as against the ground lines such as dial up modems leased lines, which
are prone to disruptions, satellite links, on the other hands ensure high speed,
availability and quality of the connection. This mode of trading is known as
"Online Trading"
Online Trading In India
Online trading introduced in India in February 2000 when a couple of broker
started offering an online trading platform for their customers.
Objectives if present trading system

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 Reduces and eliminates operational inefficiencies inherent in manual
systems.
Increased trading capacity in stock market, improves market transparency.
Eliminates unmatched trades and delayed reporting.
Set up various limits, rules and controls centrally.

3.9 Benefits of Demat Account

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.
Nomination facility.
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.
Easy and convenient way to hold securities
Safer than paper-shares (earlier risks associated with physical certificates such
as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
Traders can work from anywhere (e.g. even from home).
Nowadays with the advent of online trading, we can perform online all the
activities associated with buy, sell and transfer of shares
A safe and convenient way to hold security.

(a) Benefit to Investor

Demat account has become a necessity for all categories of investors for the
following reasons/ benefits:

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 SEBI has made it compulsory for trades in almost all scrips to be settled in
Demat mode. Although, trades up to 500 shares can be settled in physical form,
physical settlement is virtually not taking place for the apprehension of bad
delivery on account of mismatch of signatures, forgery of signatures, fake
certificates, etc.
It is a safe and convenient way to hold securities compared to holding
securities in physical form.
No stamp duty is levied on transfer of securities held in Demat form.
Instantaneous transfer of securities enhances liquidity. It eliminates delays,
thefts, interceptions and subsequent misuse of certificates.
Change of name, address, registration of power of attorney, deletion of
deceased's name, etc. - can be affected across companies by one single
instruction to the DP.
Each share is a market lot for the purpose of transactions - so no odd lot
problem.
Any number of securities can be transferred /delivered with one delivery order.
Therefore, paperwork and signing of multiple transfer forms is done away with.
It facilitates taking advances against securities on low margin/low interest.

(b) 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.

Points to Remember
You may choose your DP based on your evaluation of their reputation, service
standards, charges, other conveniences, etc.
Open depository account with the same holding pattern as there on existing
physical securities. You will need to open separate accounts for every different
combination of holding pattern. eg.: If 100 securities of company ABC & 200
securities of company PQR are registered in the name of X as first holder & Y as

81
second holder, one account in name of X as first holder & Y as second holder is
sufficient. Whereas, if 100securities of company ABC are registered in the name
of X as first holder& Y as second holder & 200 securities of company PQR are
registered in the name of Y as first holder & X as second holder, you will need to
open two accounts, one in the name of X as first holder & Y as second holder and
the second in the name of Y as first holder and X as second holder.
Account opening procedure should typically take 2-5 days.
In case of holdings of a partnership firm, the account should be opened in the
name of the partner(s).
In case of any difficulties, contact your DP.
Only securities admitted by NSDL can be dematerialized. The list is available
with your DP.
Only securities registered in the name of the account holder can be
dematerialized.
Dematerialization is normally completed within 15 days after the share
certificates have reached the issuer/their R&T Agent. Thus it may take you a
month from the date you hand over shares, to receive demat credit.
All the joint holders should sign the DRF.

3.10 Disadvantages of Demat account

For dematerialized securities, the role of key market players such as stock-brokers
needs to be supervised as they have the capability of manipulating the market.
The biggest limitation is that in order to have a demat account one needs to be
internet savvy and therefore people who are not that literate with internet will find
it hard to operate their demat account and therefore they tell their brokers or sub
brokers to transact on behalf of them which sometimes lead to fraud and
mismanagement of funds by the sub brokers.
Trading in securities may become uncontrolled in case of dematerialized
securities.

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 It is incumbent upon the capital market regulator to keep a close watch on
the trading in dematerialized securities and see to it that trading does not
act as a detriment to investors.
For dematerialized securities, the role of key market players such as stock-
brokers needs to be supervised as they have the capability of manipulating
the market.
Multiple regulatory frameworks have to be conformed to, including the
Depositories Act, Regulations and the various Bye-Laws of various
depositories.
Agreements are entered at various levels in the process of
dematerialization. These may cause worries to the investor desirous of
simplicity.
There is no provision to close a demat account, which is having illiquid
shares. The investor cannot close the account and he and his successors
have to go on paying the charges to the participant, like annual folio
charges etc.

3.11 GOVERNMENT SECURITIES

3.11.1 Dematerialisation of government securities
1. Every Client desirous of getting the physical securities converted into
dematerialised form shall submit the securities to the DP along with the
Dematerialisation Request Form (DRF-GS) and the form of transfer prescribed by
RBI.
2. Credit of securities into the Depository shall be made on account of
dematerialisation of physical securities or on account of transfer from Subsidiary
General Ledger (SGL) accounts maintained by other eligible entities or on fresh
issue of securities in dematerialised form.
3. No dematerialisation request as provided in Rule above shall be entertained by
the DP other than from a registered holder of securities.
4. A Client may convert his physical holding of securities into dematerialised
form by making an application to the DP in the Dematerialisation Request Form

83
for G-Secs (DRF-GS) along with relevant security certificate and Form of transfer
prescribed by RBI as contained in the Business Rules.
5. A Client may transfer his holdings in dematerialised form held in an SGL
account with other eligible entity by making an application to the DP in the
Dematerialisation Request Form for G-Secs (DRF-GS) as prescribed under the
Business Rules along with SGL transfer documents as prescribed under Rules of
RBI duly executed by the other eligible entity from whose SGL account the
transfer is sought.
6. Every Client desirous of transferring his holdings in dematerialised form held
in an SGL account with other eligible entity shall submit to the DP SGL transfer
documents as prescribed under Rules of RBI duly executed by the other eligible
entity along with the Dematerialisation Request Form for G-Secs (DRF-GS).
7. The Participant shall ensure that the DRF-GS submitted by its Client is duly
filled and signed. 8. The DP shall forward the DRF-GS to the Depository only
after ascertaining that the face value of certificates annexed with the DRF-GS
tallies with the face value of certificates mentioned on the DRF-GS.
9. The DP shall ensure that the certificates submitted for dematerialisation are
endorsed on the reverse, in the space provided, with the words "Tendered for
Cancellation and Credit to SGL A/c. no. Sdsjd0835 of National Securities
Depository Limited, Mumbai" in the manner laid down in Annexure UB.
10. The DP shall ensure that the client has filled the following on the DRF-GS:
11. Enter the option exercised as Submitting Physical G-Sec to NSDL
12. Account No.
13. Account Holder Name
14. Name of the Security

3.11.2 Withdrawal of government securities from the depository

1. Every Client desirous of withdrawing the securities either by getting physical
certificates or by transferring to an SGL account with other eligible entity shall
submit to the DP the Rematerialisation Request Form (RRF-GS). *( The specimen
of RRF-GS is given in Annexure UC.)*

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2. The DP shall ensure that the Client submits a separate RRF-GS for each
security and for each account maintained by the Client with the DP.
3. The DP shall ensure that the RRF-GS submitted by its Client is duly filled and
signed.
4. The DP shall ensure that the Client has sufficient holdings free of
encumbrances or lien in its account before sending the RRF-GS to the Depository.
5. The DP shall verify the signatures on each Rematerialisation request with the
signatures on the records held with it and authorise each RRF-GS before
forwarding it to the Depository.
6. On receipt of the RRF-GS, the DP shall check whether sufficient free relevant
security balance is available in the account of the Client. If there is sufficient
balance, the DP shall accept the said RRF-GS and block the balance of the Client
to the extent of the requested quantity and electronically intimate the request to
the Depository.
7. The DP shall enclose the Client details printed from the DPM and forward the
same along with the RRF-GS to the Depository.
8. The DP shall forward the RRF-GS to the Depository within seven days of
accepting such request from the Client. The Depository shall forward the
Rematerialisation request to RBI in the form prescribed by RBI.
9. In case the request was for physical certificates, the Depository shall receive,
from RBI, the physical certificates in its name and execute a form of transfer as
prescribed by RBI in favour of the Client. The Depository shall confirm the
acceptance of RRF-GS electronically and forward the physical certificates along
with the form of transfer to the Client directly.
10. In case the request was for physical certificates, the Depository shall receive
from RBI the physical certificates in its name and execute a form of transfer as
prescribed by RBI in favour of the Client.
11. In case the request was for transfer to an SGL account with other eligible
entity, the Depository shall confirm the acceptance of RRF-GS electronically to
the Participant, after obtaining approval from RBI.

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12. In case the request was for transfer to an SGL account with other eligible
entity, the Depository shall confirm the acceptance of RRF electronically to the
Participant, after obtaining approval from RBI.
13. On receipt of such confirmation from RBI as mentioned in Clause above, the
Depository shall remove the balances from the respective Participant's account
and the Participant shall remove the balances from the respective Client's account.

3.11.3 Transaction in government securities

1. The Participant shall affect a debit or credit to the accounts of its Clients
only on receipt of proper authorisation from the Clients in the forms. *
(laid out in Annexure L and M.)*
2. Alternatively, a Client may give standing instructions to its DP to credit its
account.
3. In case of purchase of Government Securities by a Client from a seller,
holding securities in an SGL account with other eligible entity, the Client
shall submit, to the DP, *(purchase instruction in the format given in
Annexure UE)*. The Client shall also make necessary funds available to
the Depository for the purchase of these securities.
4. In case of sale of Government Securities by a Client to a buyer who
maintains an SGL account with other eligible entity, the Client shall
submit to the DP

3.11.4 Corporate Benefits with respect to Government Securities

1. The Depository shall inform all the DP about the shut period (book
closure) for Government Securities as and when scheduled by RBI.
2. All DPs must ensure that :

a. Changes such as bank details, address, etc. In the beneficial owner

accounts are updated well in advance of the interest payment and/or
redemption payment due date;

86
 b. They remain connected till the EOD of the interest payment due date
and/or redemption payment due date.
3. The Depository shall distribute the interest to the Clients who have
balances in Government Securities, for which interest payment is due, at
the EOD of the interest payment due date, after the same has been made
available to the Depository by RBI.
4. The Depository shall pay the redemption amount to the Clients who have
balances in Government Securities, due for redemption, at the EOD of the
redemption due date, after the redemption amount have been made
available to the Depository by RBI.
5. The Depository shall pay the amount mentioned, to the clients directly or
to the bank account of the Client as per the details given in the Account
opening form.

3.11.5 Records To Be Maintained By Depository With Respect To

Government Securities:
The Depository shall maintain the following records with respect to the
Government
Securities for a period of five years:-
1. DRF-GS filled by the Client;
2. Certificate details of securities received for dematerialization;
3. Objection memo and certificate details of the rejected securities
against the DRN;
4. RRF-GS submitted by the Client;
5. Proof of delivery of Government Securities which have been sent to the
Client after Rematerialization.
6. A register showing details of grievances received from Clients and their
present status.

Chapter 4

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4.1 Intermediaries of Depositories
4.1.1 Depository Participants
Depositories demat services are extended through its agents called Depository
Participants (DP). The DP is the link between the investor and depository. An
investor who opens a Demat account, a DP can utilize the services offered by
Depository. While the DP processes the instructions of the investor, the account
and records thereof is maintained with CDSL. A DP is thus a service centre for
the investor.
Depository system is based on centralized database architecture with on-line
connectivity with DPs. Because of this centralized architecture, the cost for
setting up a DP outfit under Depository system is significantly lower. Similarly,
the recurring costs to be incurred by a Depository-DP in terms of maintaining
back-ups and the related data storage are minimal. This enables a Depository-DP
to offer depository services to investors at an attractive price and at the same time
achieve break-even faster at much lower volumes. The centralised architecture
also allows Depository-DP to make available to the investors a to- the- minute
status of their account and transactions.

4.1.2 Issuer Companies

Corporate/ Companies which issue any kind of security are known as issuer in
the depository system. Only those securities, which are admitted into the
Depository system is available for dematerialization to holders of such securities
or can be allotted in electronic record form by the issuer. Securities include
shares, debentures, bonds, commercial paper (C.P.), certificates of deposits (C.D.),
pass through certificates (PTDs), government securities and mutual fund units.
Both listed and unlisted securities can be admitted into the Depository system.
Depository functions as the central accounting and record keeping office in
respect of the securities admitted by issuer companies.
It is mandatory for all listed companies to have their securities admitted for
dematerialisation with both the depositories via CDSL & NSDL. It is however

88
desirable that all securities are admitted on both the depositories so that investors
having account with any of the depositories can acquire that security.

4.1.3 RTA:
In the depository system, companies who wish to admit their shares and securities
into the system should obtain electronic connectivity with CDSL & NSDL or
avail the service of a registrar and transfer agents (RTA), for connectivity. CDSL
& NSDL functions as the central accounting and record keeping office in respect
of the securities admitted by these companies
CDSLs & NSDLs system is based on centralised database architecture with on-
line connectivity with RTAs. Because of this centralization, the cost for setting up
RTA connectivity is significantly less without compromising in any manner on
security and safety of the system. RTAs also need not incur high recurring cost in
terms of maintaining back-ups and the related data storage. These advantages
provide the wherewithal to RTAs to offer service to issuer companies at a
significantly lower cost. The centralised architecture also allows the RTAs to
provide the companies with a to-the-minute status of the holdings of their
shareholders.

4.1.4 Clearing Members

Clearing members (CMs) are the members of the clearing house/Clearing
Corporation who facilitate settlement of trades done on stock exchanges. They
could be a broker or custodian registered with SEBI as such is an important
intermediary in the capital market and an essential link in the depository system.
CMs main activity is to facilitate pay-in/pay-out of securities to/from stock
Exchanges/Clearing House/Clearing Corporation either on their own behalf or on
behalf of their clients. The securities which are due for delivery can be delivered
directly from clients account (depending on whether exchange provides this
facility) or through CMs to the Stock Exchanges/Clearing House/Clearing
corporations Account. Similarly, pay-out of securities can be delivered directly to

89
clients account on the basis of information given to Clearing House by the CMs
or to CMs A/c.

4.2 Difference between NSDL and CDSL

4.2.1 Key difference: -
NSDL AND CDSL are both depositories which hold various securities like
money, property etc. in an electronic form. NSDL works for national stock
exchange, whereas CDSL works for Bombay stock exchange.
NSDL stands for National Securities Depository whereas CDSL stands for
Central Securities Depository limited. They both are depositories that hold
various securities like shares in electronic form. There is no major difference
between the two; however there is small difference between in their charges and
their source of work.
A depository is an organization that holds securities of investors in an electronic
format at the request of an investor through a registered depository participant. It
assists in the allotment and transfer of securities and securities lending. In a
depository, securities such as money, shares and property etc. are kept for safe
keeping under their or depository terms. The securities are held in the form of
electronic accounts. They carry out their various through functionaries called as
business partners or Depository participants. This system is governed under the
Depository act by the government. The enactment of this act paved the way for
the establishment of NSDL and CDSL.
The National Securities Depository Limited (NSDL) was the depository in India.
It was registered by SEBI on 7 th June 1996, as the very first Depository to
facilitate trading and settlement of securities in Demat form. It is promoted by
institutions of national stature, which are responsible for the electronic
development of India and have established an infrastructure of international
standards. They handle most of the securities, which are held and settled in a
dematerialized form in the Indian capital market. Its main promoters are IDBI,
UTI or NSE. Central Depository Services Limited (CDSL) is the second Indian

90
central securities depository. It is based in Mumbai. Its main function is the
holding securities either in certificated or un-certificated i.e. dematerialized form;
it helps to enable the book entry transfer of securities. It began operating in
February in the year 1999. Its main promoters are BSE, HDFC, SBI, BOI and
BOB.

NSDL:-
Abbreviation- It stands for National Securities Depository Limited.
Founded- November 1996
Headquarters- Mumbai, India
Promoters- IDBI, UTI etc.
Market- National Stock Exchange (NSE)

CDSL:-
Abbreviation- It stands for Central Depository Services Limited.
Founded- February 1999
Headquarters- Mumbai, India.
Promoters- HDFC, SBI, BOI, BOB
Market- Bombay Stock Exchange (BSE)

4.3 Need and Importance of depository system

Depository system exists in all developed countries. The size of Indian capital
market has expanded because of the policy of liberalization and globalization
adopted by the Government of India in 1991. Foreign investors are expected to
play an important role. They place their large funds in Indian industries.
Need for depository arises due to the drawbacks of the conventional system of
share transfer while holding shares in physical form. A share certificate is a proof

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of ownership of shares. Transfer deed is to be executed for transfer of ownership
in shares. Registration by the company is required to transfer the share. Stamp
duty on the basis of market value is to be paid. The present system of transfer of
shares thus, has the difficulties such as bad deliveries, more paper work, delayed
transfers, loss, of share certificate, forgeries and frauds. To remove these
difficulties or drawbacks a new system has been adopted. It is the depository
system in which share transfers are electronic.
In electronic transfer, transactions take place much faster than in physical form. It
eliminates loss, theft, mutilation and forgery etc. No stamp duty is to be paid on
electronic transfer. Right and bonus shares are distributed fast because of direct
credit: There is a facility of creating -charge on dematerialized share for getting
loans and advances. There is no loss of share certificate because it is stored
electronically. Payment can be made much faster on sale of shares.
Dematerialization reduces the paper work.
Dematerialization is optional according to the Companies Act. An investor can
hold shares in physical form. But if he wishes to sell his shares, he has to demat
the shares. If he wishes to purchase shares he will get delivery of shares in demat
form. SEBI has made demat compulsory for traded scrips. Shares are allotted by
crediting demat account of investor.

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CONCLUSION

To sum up, there is an increase in the terms of number of companies available for
demat, number of companies signed for demat, number of depository participant,
number of locations and value of dematerialized stock is observed during the
period 2000 to 2013 in both the depositories, i.e. NSDL and CDSL. There is a
significant difference in the performance, on an average, of both the depositories
on the basis of the selected parameters. There is also a positive correlation in the
performance of the depositories in the above parameters, which is also found
significant. On the basis of comparative financial analysis, it is concluded that the
liquidity position as measured by current ratio is better in case of CDSL as
compared to NSDL. The profitability position of NSDL is better than that of
CDSL as measured by return on net worth and return on capital employed.
However, return on equity and EPS is low in NSDL as compared to CDSL.

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BIBLOGRAPHY

Web Sites

http://en.m.wikipedia.org/.../
www.sebi.gov.in/fag/fagdemat.html
https://www.cdslindia.com/dp/dplist.aspx
https://nsdl.co.in/
www.investopedia.com/.../

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