6. DEPOSITORY

6. DEPOSITORY
How is a depository similar to a bank?
A Depository can be compared with a bank, which holds the funds for
depositors. An analogy between a bank and a depository may be drawn as
follows:
BANK DEPOSITORY
Holds funds in an account Hold securities in an account
Transfers funds between
accounts on the instruction of
the account holder
Transfers securities between
accounts on the instruction of the
account holder.
Facilitates transfers without
having to handle money
Facilitates transfers of ownership
without having to handle securities.
Facilitates safekeeping of
money
Facilitates safekeeping of shares.
Which are the depositories in India?
There are two depositories in India which provide dematerialization of
securities. The National Securities Depository Limited (NSDL) and Central
Securities Depository Limited (CSDL).
What are the benefits of participation in a depository?
The benefits of participation in a depository are:
§ Immediate transfer of securities
§ No stamp duty on transfer of securities
§ Elimination of risks associated with physical certificates such as bad
delivery, fake securities, etc.
§ Reduction in paperwork involved in transfer of securities
§ Reduction in transaction cost
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§ Ease of nomination facility
§ Change in address recorded with DP gets registered electronically
with all companies in which investor holds securities eliminating the
need to correspond with each of them separately
§ Transmission of securities is done directly by the DP eliminating
correspondence with companies
§ Convenient method of consolidation of folios/accounts
§ Holding investments in equity, debt instruments and Government
securities in a single account; automatic credit into demat account, of
shares, arising out of split/consolidation/merger etc.
Who is a Depository Participant (DP)?
The Depository provides its services to investors through its agents called
depository participants (DPs). These agents are appointed by the depository
with the approval of SEBI. According to SEBI regulations, amongst others,
three categories of entities, i.e. Banks, Financial Institutions and SEBI
registered trading members can become DPs.
Does one need to keep any minimum balance of securities in
his account with his DP?
No. The depository has not prescribed any minimum balance. You can have
zero balance in your account.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique
identification number for a security.
What is a Custodian?
A Custodian is basically an organisation, which helps register and safeguard
the securities of its clients.
Besides safeguarding securities, a custodian also keeps track of corporate
actions on behalf of its clients:
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§ Maintaining a client’s securities account
§ Collecting the benefits or rights accruing to the client in respect of
securities
§ Keeping the client informed of the actions taken or to be taken by the
issue of securities, having a bearing on the benefits or rights accruing
to the client.
How can one convert physical holding into electronic holding
i.e. how can one dematerialise securities?
In order to dematerialise physical securities one has to fill in a Demat
Request Form (DRF) which is available with the DP and submit the same
along with physical certificates one wishes to dematerialise. Separate DRF
has to be filled for each ISIN number.
Can odd lot shares be dematerialised?
Yes, odd lot share certificates can also be dematerialised.
Do dematerialised shares have distinctive numbers?
Dematerialised shares do not have any distinctive numbers. These shares
are fungible, which means that all the holdings of a particular security will
be identical and interchangeable.
Can electronic holdings be converted into Physical
certificates?
Yes. The process is called Rematerialisation. If one wishes to get back your
securities in the physical form one has to fill in the Remat Request Form
(RRF) and request your DP for rematerialisation of the balances in your
securities account.
Can one dematerialise his debt instruments, mutual fund
units, government securities in his demat account?
Yes. You can dematerialise and hold all such investments in a single demat
account.