FAQs: Demat
What is a depository ?
A depository is an organization where share certificates of a
shareholder are held in electronic form. This is done at the
request of the shareholder through a depository participant (DP).
If an investor wants to use services offered by a depository,
he/she has to open an account with the depository through a DP -
more about him later - much like opening an account with any
branch of a bank to utilize its services. In fact, in many ways, a
depository is similar to a bank.
What is dematerialization ?
Dematerialization (a euphemism for shredding) is a process by
which an investor's physical share certificates are taken back by
the company/registrar and destroyed. Then an equivalent number of
securities are credited in the electronic holdings of that
investor. This is done at the request of the investor. An investor
will have to first open an account with a DP and then request for
the dematerialization of his ……………..credited into that
account.
Who is this DP ?
A DP is your representative in the depository system. Your DP will
maintain your securities account balances and intimate to you the
status of your holdings from time to time. According to Sebi
guidelines, financial institutions, banks, custodians, stock
brokers etc., can become DP's.
Why should investor buy/sell shares in the depository mode ?
Currently, it takes an investor two and three months to get shares
registered in his name. Besides, chances of shares being lost or
stolen during transit are real. But when you buy shares which are
already in the depository mode, you become the owner of those
shares in the depository within a day of the settlement being
completed. You don't have to apply to the company to register the
shares in your name. The possibility of loss or theft when
certificates are posted to the company is eliminated.
Will there be a charge for the opening of an account or for
every transaction ?
There will be reasonable charges for the opening of accounts and
also for every transaction in the accounts. The depository will
publish its charges and the DPs will also have to make their
charges known to the market. Thirty three DPs (names can be got
from www.nsdl.com) are offering investors various incentives -
including not charging them anything for opening an account if
they sign up before January 4, 1999.
How will I know that my DP has updated my account after each
transaction ?
Just like a bank, the DP will give you a passbook or a statement
of holdings. The statement of holdings will be deposited to you
periodically by the DP. However, the statement of holdings can be
sent to you as and when you request it.
What happens if I lose my holdings-statement or depository
passbook ?
Simple. Inform your DP and obtain a duplicate holdings statement
or depository passbook. Your holdings statement or passbook cannot
be used by anybody else for trading in your account.
Who will give me the benefits arising out of my holdings, say a
bonus or a dividend ?
When any company announces rights, bonus or dividend, the
depository will give all details of the clients having electronic
holdings of that security as ……………the corporate benefits
due to all the shareholders. The disbursement of cash benefits
such as dividend/interest will be done by the registrar whereas
the distribution of securities entitlements (in case of rights or
bonus issue) will be done by the depository based on the
information provided by the registrar.
Can electronic holdings be converted back into certificates ?
Yes. If you wish to get back your securities in the physical form
all you have to do is to request your DP for the rematerialisation
of the same. Rematerialisation is the term used for converting
electronic holdings back into certificates. Your DP will forward
your request to the depository after verifying that you have the
necessary security balances. The depository will in turn intimate
the registrar who will print the certificates and dispatch them to
you.
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