Demat
Demat refers to a dematerialised account. Just as you have to open an account with a bank if you want to save your money, make check payments, etc., you need to open a demat account if you want to buy or sell stocks. In a demat account shares and securities are held in electronic form instead of cash. Demat Account is given to the investor while registering with a broker or a sub broker. A demat account has a corresponding account number which is used for all transactions.
The purpose of the demat account is to keep the shares safe are bought in the Exchange (BSE or NSE). In earlier days before the demat accounts, investors were given relevant documents and certificates for the shares they bought. These documents had to be kept safe and were to be given to the buyer when selling. Problems such as misuse and counterfeiting of the documents were not uncommon. So SEBI planned to use the Demat Account in order to prevent the misusing of share Documents by avoiding trading in the physical form altogether. The account holder’s shares are stored in the demat account in the electronic form. The demat account is much more secure than share documents since it is protected with an internet password and a transaction password, and transfer of shares to a third person without the knowledge of these passwords is not possible. When one buys shares, those shares can be added to the Demat Account automatically. When shares are sold, they can automatically be transfered from our the demat account to the buyer's demat account.
Advantages 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 forgery, counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also avoid stamp duty (as against 0.5 per cent payable on physical shares), avoid filling up of transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.
Indian Market Scenario
Indian capital market has seen unprecedented boom in its activity in the last 15 years in terms of number of stock exchanges, listed companies, trade volumes, market intermediaries, investor population, etc. However, this surge in activity has brought with it numerous problems that threaten the very survival of the capital markets in the long run, most of which are due to the large volume of paper work involved and paper based trading, clearing and settlement. Until the late eighties, the common man kept away from capital market and thus the quantum of funds mobilized through the market was meager. A major problem, however, continued to plague the market. The Indian markets were drowned in shares in the form of paper and hence it was problematic to handle them. Fake and stolen shares, fake signatures and signature mismatch, duplication and mutilation of shares, transfer problems, etc. The investors were scared and were under compensated for the risk borne by them. The century old system of trading and settlement requires handling of huge volumes of paper work. This has made the investors, both retail and institutional, wary of entering the capital market. However, lack of modernization become a hindrance to growth and resulted in creation of cumbersome procedures and paper work. However, the real growth and change occurred from mid-eighties in the wake of liberalization initiatives of the Government. The reforms in the financial sector were envisaged in the banking sector, capital market, securities market regulation, mutual funds, foreign investments and Government control. These institutions and stock exchanges experienced that the certificates are the main cause of investors` disputes and arbitration cases. Since the paper work was not matching the rapid growth so there was a need for a better system to ensure removal of these impediments. Government of India decided to set up a fully automated and high technology based model exchange that could offer screen-based trading and depositories as the ultimate answer to all such reforms and eliminate various bottlenecks in the capital market, particularly, the clearing and settlement system in stock exchanges.[1] A depository in very simple terms is a pool of pre-verified shares held in electronic mode which offers settlement of transactions in an efficient and effective way.
Demat Benefits
The benefits are enumerated as follows
. Its a safe and convenient way to hold securities
. Immediate transfer of securities is there
. There is no stamp duty on transfer of securities
. Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc
. There is a major reduction in paperwork involved in transfer of securities,reduction in transaction cost etc
. No odd lot problem, even one share can be sold thus there is an advantage
. Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;
• Transmission of securities is done by DP eliminating correspondence with companies;
• Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.
• Holding investments in equity and debt instruments in a single account.
Benefit to the Company
The depository system helps in reducing the cost of new issues due to less printing and distribution cost. It increases the efficiency of the registrars and transfer agents and the Secretarial Department of the company. It provides better facilities for communication and timely services with shareholders, investor etc.
Benefit to the Investor The depository system reduces risks involved in holding physical certificated, e.g., loss, theft, mutilation, forgery, etc.It ensures transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad delivery problem due to signature differences, etc.It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.
Benefit to Brokers The depository system reduces risk of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery – bad delivery. It increases overall of trading and profitability.It increases confidence in investors.
For More Details
Demat Account Opening & Online Trading
K.SURESH
Mobile:9790214417
Email:sureshk1.mca@gmail.com
web:www.angeltrade.com
Angel Broking
No.45,TTK Road,Alwarpet,
Chennai-18
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