INTRODUCTION

In india, shares and securities are held electronically in a

dematerialized (or "Demat") (/dimt/;) account, instead of the
investor taking physical possession of certificates. A
Dematerialized account is opened by the investor while
registering with an investment broker (or sub-broker). The
Dematerialized account number is quoted for all transactions to
enable electronic settlements of trades to take place. Every
shareholder will have a Dematerialized account for the purpose
of transacting shares.
Access to the Dematerialized 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 Dematerialized account are automatically
made once transactions are confirmed and completed.
Demat is nothing but a dematerialized account. If one has to save money or
make cheque payments, then he/she needs to open a bank account. Similarly,
one needs to open a Demat account if he/she wants to buy or sell stocks. Thus,
Demat account is similar to a bank account where in the actual money is being
replaced by shares. In order to open a Demat account, one needs to approach
the Depository Participants [DPs]
In India, a Demat account is a type of banking account that dematerializes paperbased physical stock shares. The Demat account is used to avoid holding of
physical shares: the shares are bought as well as sold through a stock broker. In
this case, the advantage is that one does not need any physical evidence for
possessing these shares. All the things are taken care of by the DP.
This account is very popular in India. Physically only 500 shares can be traded as
per the provision given by SEBI. From April 2006, it has become mandatory for
any person holding a Demat account to possess a Permanent Account Number
(PAN).

Depository participant
In India, a Depository Participant (DP) is described as an
agent of the depository. They are the intermediaries between
the depository and the investors. The relationship between the
DPs and the depository is governed by an agreement made

between the two under the Depositories Act. In a strictly legal

sense, a DP is an entity who is registered as such with SEBI
under the sub section 1A of Section 12 of the SEBI Act. As per
the provisions of this Act, a DP can offer depository-related
services only after obtaining a certificate of registration from
SEBI. As of 2012, there were 288 DPs of NSDL and 563 DPs of
CDSL registered with SEBI.[1][2]
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth
of Rs. 50 lakh for stockbrokers, R&T agents and non-banking
finance companies (NBFC), for granting them a certificate of
registration to act as DPs. If a stockbroker seeks to act as a DP
in more than one depository, he should comply with the
specified net worth criterion separately for each such
depository. No minimum net worth criterion has been
prescribed for other categories of DPs; however, depositories
can fix a higher net worth criterion for their DPs. Depository is
an institution or a kind of organization which holds securities
with it, in which trading is done among shares, debentures,
mutual funds, derivatives, F&O and commodities. The
intermediaries perform their actions in variety of securities at
Depository on behalf of their clients. These intermediaries are
known as Depositories Participants. Fundamentally, There are
two sorts of depositories in India. One is the National Securities
Depository Limited(NSDL) and the other is the Central
Depository Service (India) Limited(CDSL). Every Depository
Participant(DP) needs to be registered under this Depository
before it begins its operation or trade in the market.

Transfer of Shares between (depository

participant) DPs
To transfer shares, an investor has to fill one of two kinds of
Depository Instruction Slip (DIS). The first check made is
whether both Demat accounts are at the same depository.
There are two depositories: (CDSL (Central Depository Service
(India) Limited) and NSDL (National Securities Depository
Limited)). If both demat accounts are not at the same

depository, then an Inter Depository Slip (Inter DIS) has to be

filled and submitted. For example:
If there is one Demat account with CDSL and the other
Demat account with NSDL, then an Inter-DIS is needed. (In
case the investor needs an Inter-DIS, the investor should
check with the broker, since brokers usually issue an InterDIS).
Now that the correct DIS has been determined,
information pertaining to the transfer transaction has to
be entered: scrip name, INE number, quantity in words
and figures.
Finally, the investor should submit that DIS to the broker
with signatures.
The transfer broker shall accept that DIS in duplicate and
acknowledge receipt of DIS on duplicate copy.
The investor should submit the DIS when the market is open.
Accordingly, date of submission of DIS and date of execution of
DIS can be same or a difference of one day is also acceptable.
The investor also has to pay the broker some charges for the
transfer.
A Depository Instruction (DIS) is almost like a cheque book, so it
can be misused if issued blank. Hence, an investor should
exercise sufficient caution while issuing a DIS slip. For example:
an investor should deposit only a completely filled-in slip to the
broker. Unfilled rows should be cancelled out so that they
cannot be tampered with.

Documents Required For Demat

Account
To open a Demat account you have to provide documents which
fulfill the requirements of KYC (Know Your Customer) norms. You
have to sign a contract with Stock broker. Generally the
documents are:
PAN (Compulsory)

 Bank statement (last 3 months)

Address Proof
Income Tax Return
Two colour photos
Bank crossed Cheque (If required)
KYC details

HOW TO OPEN A DEMAT ACCOUNT ?

Opening an individual Demat account is a two-step process: You
approach a DP and fill up the Demat account-opening booklet.
The Web sites of the NSDL and the CDSL list the approved DPs.
You will then receive an account number and a DP ID number
for the account. Quote both the numbers in all future
correspondence with your DPs.
So it is just like a bank account where actual money is replaced
by shares. You have to approach the DPs (remember, they are
like bank branches), to open yourdemat account. Lets say
your portfolio of shares looks like this: 150 of Infosys, 50 of
Wipro, 200 of HLL and 100 of ACC. All these will show in
your demat account. So you dont have to possess any
physical certificates showing that you own these shares. They
are all held electronically in your account. As you buy
and sell the shares, they are adjusted in your account. Just
like a bank passbook or statement, the DP will provide you
with periodic statements of holdings and transactions.
Is a demat account a must? Nowadays, practically all trades
have to be settled in dematerialised form. Although the market
regulator, the Securities and Exchange Board of India (SEBI),

has allowed trades of upto 500 shares to be settled in physical

form, nobody wants physical shares any more.
So a demat account is a must for trading and investing.
Most banks are also DP participants, as are many brokers.
You can choose your very own DP.
To get a list, visit the NSDL and CDSL websites and see who the
registered DPs are.
A broker is separate from a DP. A broker is a member of
the stock exchange, who buys and sells shares on his behalf
and on behalf of his clients.
A DP will just give you an account to hold those shares.
You do not have to take the same DP that your broker takes.
You can choose your own.
Banks are also advantageous because of the number of
branches they have. Some banks give the option of opening a
Demat account in any branch, while others restrict themselves
to a selected set of branches.
Some private banks also provide online access to the Demat
account. So, you can check on your holdings, transactions and
status of requests through the net banking facility. A broker who
acts as a DP may not be able to provide these services.
DEMAT ACCOUNT OPENING COST AND OTHER CHARGES
The cost of opening and holding a Demat account. There
are four major chargesusually levied on a Demat account:
Account opening fee, annual maintenance fee, custodian fee
and transaction fee. All the charges vary from DP to DP.
Depending on the DP, there may or may not be an opening
account fee. Private banks, such as ICICI Bank, HDFC bank and
UTI bank, do not have it. However, players such as Karvy

Consultants and the State Bank of India charge it. But most
players levy this when you re-open a Demat account, though
the Stock Holding Corporation offers a lifetime account opening
fee, which allows you to hold on to your Demat account over a
long period. This fee is refundable.
Annual maintenance fee: This is also known as folio
maintenance charges, and is generally levied in advance.
Custodian fee: This fee is charged monthly and depends on
the number of securities (international securities identification
numbers ISIN) held in the account. It generally ranges
between Rs. 0.5 to Rs. 1 per ISIN per month.
DPs will not charge custody fee for ISIN on which the companies
have paid one-time custody charges to the depository.
Transaction fee: The transaction fee is charged for
crediting/debiting securities to and from the account on a
monthly basis. While some DPs, such as SBI, charge a flat fee
per transaction, HDFC Bank and ICICI Bank peg the fee to he
transaction value, subject to a minimum amount.
The fee also differs 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.

Demat benefits
Demat account for shares and securities with Business purpose
The benefits of demat are enumerated[by whom?] as follows:
Easy and convenient way to hold securities

 Immediate transfer of securities

No stamp duty on transfer of securities
Safer than paper-shares (earlier risks associated with
physical certificates such as bad delivery, fake securities,
delays, thefts etc. are mostly eliminated)
Reduced paperwork for transfer of securities
Reduced transaction cost
No "odd lot" problem: even one share can be sold
Change in address recorded with a DP gets registered with
all companies in which investor holds securities
eliminating the need to correspond with each of them
separately.
Transmission of securities is done by DP, eliminating the
need for notifying companies.
Automatic credit into demat account for shares arising out
of bonus/split, consolidation/merger, etc.
A single demat account can hold investments in both
equity and debt instruments.
Traders can work from anywhere (e.g. even from home).
Benefit to the company
The depository system helps in reducing the cost of new issues
due to lower printing and distribution costs. It increases the
efficiency of the registrars and transfer agents and the
secretarial department of a company. It provides better
facilities for communication and timely service to shareholders
and investors.
Benefit to the investor
The depository system reduces risks involved in holding
physical certificates, e.g., loss, theft, mutilation, forgery, etc. It

ensures transfer settlements and reduces delay in registration

of shares. It ensures faster communication to investors. It helps
avoid bad delivery problems due to signature differences, etc. It
ensures faster payment on sale of shares. No stamp duty is
paid on transfer of shares. It provides more acceptability and
liquidity of securities.
Benefits to brokers
It reduces risks of delayed settlement. It ensures greater profit
due to increase in volume of trading. It eliminates chances of
forgery or bad delivery. It increases overall trading and
profitability. It increases confidence in their investors.

Disadvantages of Demat
Trading in securities may become uncontrolled in case of
dematerialized securities.
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..

 After liquidating the holdings, many Indian investors don't

close their dp account.They are unaware that DPs charge
even on dormant accounts