information about demat accounts

FREQUENTLY ASKED QUESTIONS ON DEMATERIALISATION

Disclaimer: These FAQs are not the interpretation of law but provide only a simplistic explanation of terms /concepts related to the depository system. SEBI does not certify the authenticity of the information present in this section. All information has been updated till March 31, 2006. For full particulars of laws governing the depository system, please refer to the Acts/Regulations/Guidelines/Circulars appearing under the Legal Framework Section.




Understanding Depository System

1. What is a Depository?

A depository is an organisation which holds securities 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.

3. How many Depositories are registered with SEBI?

At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (I) Limited (CDSL) are registered with SEBI.

4. Who is a Depository Participant?

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI. Banking services can be availed through a branch whereas depository services can be availed through a DP.

5. What is the minimum net worth required for a depository?

The minimum net worth stipulated by SEBI for a depository is Rs.100 crore.

6. How many Depository Participants are registered with SEBI?

As on 31/03/2006, total of 538 DPs are registered with SEBI. A list of DP’s and their addresses can be downloaded from SEBI website.

7. Is it compulsory for every investor to open a depository account to trade in the capital market?

As per the available statistics at BSE and NSE, 99.9% settlement takes place in demat mode only. Therefore, in view of the convenience in settlement through demat mode, it is advisable to have a beneficiary owner (BO) account to trade at the exchanges.

8. What are the benefits of availing depository services?

The benefits are enumerated below:-

· A safe and convenient way to hold securities;
· 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;
· 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.

Account Opening
9. How can services of a depository be availed?

To avail the services of a depository an investor is required to open an account with a depository participant of any depository.

10. How can one open an account?

First an investor has to approach a DP and fill up an account opening form. The account opening form must be supported by copies of any one of the approved documents to serve as proof of identity (POI) and proof of address (POA) as specified by SEBI. Besides, production of PAN card in original at the time of opening of account has been made mandatory effective from April 01, 2006.

All applicants should carry original documents for verification by an authorized official of the depository participant, under his signature.

Further, the investor has to sign an agreement with DP in a depository prescribed standard format, which details rights and duties of investor and DP. DP should provide the investor with a copy of the agreement and schedule of charges for their future reference. The DP will open the account in the system and give an account number, which is also called BO ID (Beneficiary Owner Identification number).

The DP may revise the charges by giving 30 days notice in advance. SEBI has rationalised the cost structure for dematerialisation by removing account opening charges, transaction charges for credit of securities, and custody charges vide circular dated January 28, 2005.

Further, SEBI has vide circular dated November 09, 2005 advised that with effect from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e. identical in all respects. In case the BO Account at transferor DP is a joint account, the BO Account at transferee DP should also be a joint account in the same sequence of ownership.

11. Why should an investor give his bank account details at the time of account opening?

It is for the protection of investor’s interest. The bank account number will be mentioned on the interest or dividend warrant, so that such warrant cannot be encashed by any one 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.

12. Can an investor change the details of his bank account?

Yes. 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.

13. What should be done if the address of the investor changes?

Investor should immediately inform his/her DP, who in turn will update the records. This will obviate the need of informing different companies.

14. Can multiple accounts be opened?

Yes. An investor can open more than one account in the same name with the same DP and also with different DPs.

15. Does the investor have to keep any minimum balance of securities in his/her accounts?

No.

16. Is it necessary to have account with the same DP as broker has?

No. Depository / DP can be chosen by investor as per convenience irrespective of the DP of the broker.

17. Can an investor open a single account for securities owned in different ownership patterns such as securities owned individually and securities owned jointly with others? No. The demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in the individual name and another certificate is jointly with somebody, two different accounts would have to be opened.

18. What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with ‘A’ as first holder and ‘B’ as second holder and other set of certificates with ‘B’ as first holder and ‘A’ as the second holder?

In this case the investor may open only one account with ‘A’ & ‘B’ as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. An additional form called "Transposition cum Demat" form will have to be filled in. This would help you to effect change in the order of names as well as dematerialise the securities.

19. Can an investor operate a joint account on "either or survivor" basis just like a bank account?

No. The demat account cannot be operated on "either or survivor" basis like the bank account.

20. Can someone else operate the account on behalf of the BO on the basis of a power of attorney?

Yes. If the BO authorises any person to operate the account by executing a power of attorney and submit it to the DP, that person can operate the account on behalf of the BO.

21. Can addition or deletion of names of accountholders is permitted after opening the account?

No. The names of the account holders of a BO account cannot be changed. If any change has to be effected by addition or deletion, a new account has to be opened in the desired holding pattern (names) and then transfer the securities to the newly opened account. The old account may be closed.

22. Can an investor close his demat account with one DP and transfer all securities to another account with another DP?

Yes. The investor can submit account closure request to his DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the demat account.

23. What would be the charges for account closure and securities transfer due to account closing?

SEBI vide Circular No. MRD/DoP/Dep/Cir-22 /05 dated November 09, 2005 advised that with effect from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e. identical in all respects. In case the BO Account at transferor DP is a joint account, the BO Account at transferee DP should also be a joint account in the same sequence of ownership.



All other transfer of securities consequent to closure of account, not fulfilling the above-stated criteria, would be treated like any other transaction and charged as per the schedule of charges agreed upon between the BO and the DP.



24. Whether investors can freeze or lock their accounts?



Investors can freeze or lock their accounts for any given period of time, if so desired. Accounts can be frozen for debits (preventing transfer of securities out of accounts) or for credits (preventing any movements of hindrances into accounts) or for both.



Dematerialisation



25. What is dematerialisation?



Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor's account with his/her DP.



26. 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 DRF (Demat Request Form) 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. The complete process of dematerialisation is outlined below:



* Surrender certificates for dematerialisation to your depository participant.
* Depository participant intimates Depository of the request through the system.
* Depository participant 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 of the completion of dematerialisation.
* Depository updates its accounts and informs the depository participant.
* Depository participant updates the demat account of the investor.



27. What is an ISIN?



ISIN (International Securities Identification Number) is a unique identification number for a security.



28. Can odd lot shares be dematerialised?



Yes, odd lot share certificates can also be dematerialised.



29. 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.



30. Can electronic holdings be converted back into Physical Certificates?



Yes. The process is called rematerialisation. If one wishes to get back his securities in the physical form one has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account. The process of rematerialisation is outlined below:



• One makes a request for rematerialisation.

• Depository participant intimates depository of the request through the system.

• Depository confirms rematerialisation request to the registrar.

• Registrar updates accounts and prints certificates.

• Depository updates accounts and downloads details to depository participant.

• Registrar dispatches certificates to investor.





Trading / Settlement



31. What is the procedure for selling dematerialised 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

· The broker will give instruction to its DP to debit his account and credit investor's account

· Investor will give ‘Receipt Instruction to DP for receiving credit by filling appropriate form. However one can give standing instruction for credit

in to ones account 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 broker’s account. Such instruction should reach the DP’s office at least 24 hours before the pay-in as other wise DP will accept the instruction only at the investor’s risk.









32. What is 'Standing Instruction' given in the account opening form?



In a bank account, credit to the account is given only when a 'pay in' slip is submitted together with cash/cheque. Similarly, in a depository account 'Receipt in' form has to be submitted to receive securities in the account. However, for the convenience of investors, facility of 'standing instruction' is given. If you say 'Yes' for standing instruction, you need not submit 'Receipt in' slip everytime you buy securities. If you are particular that securities can be credited to your account only with your consent, then do not say 'yes' [or tick ] to standing instruction in the application form.



33. What is delivery instruction slip (DIS)? What precautions do one need to observe with respect to Delivery Instruction Slips?



To give the delivery one has to fill a form called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS:-



· Ensure and insist with DP to issue DIS book.

· Ensure that DIS numbers are pre-printed and DP takes acknowledgment for the DIS booklet issued to investor.

· Ensure that your account number [client id] is pre-stamped.

· If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed.

· Avoid using loose slips

· Do not leave signed blank DIS with anyone viz., broker/sub-broker.

· Keep the DIS book under lock and key when not in use.

· If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one.

· Investor should personally fill in target account -id and all details in the DIS.



34. Is it possible to give delivery instructions to the DP over Internet and if yes, how?



Yes. Both NSDL and CDSL have launched this facility for delivering instructions to your DP over Internet, called SPEED-e and EASI respectively. The facility can be used by all registered users after paying the applicable charges.



Corporate Benefits



35. Is it possible to get securities allotted in public offering directly in the electronic form?



Yes, it is possible to get securities allotted to in Public Offerings directly in the electronic form. In the public issue application form there is a provision to indicate the manner in which an investor wants the securities allotted. He has to mention the BO ID and the name and ID of the DP on the application form. Any allotment made will be credited into the BO account.



36. How are cash corporate benefit such as dividend / interest received?



The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from Depositories. The payment to the investors will be made by the company through the ECS (Electronic Clearing Service) facility, wherever available. Thus the dividend / interest will be credited to your bank account directly. Where ECS facility is not available dividend / interest will be given by issuing warrants on which your bank account details are printed. The bank account details will be those which you would have mentioned in your account opening form or changed thereafter.



37. How would one receive non-cash corporate benefit such as bonus etc.?



The concerned company obtains the details of beneficiary holders and their holdings as on the date of the book closure / record date from depositories. The entitlement will be credited by the company directly into the BO account.



38. Who should be contacted in case of discrepancies in corporate benefits?



In case of discrepancies in corporate benefits, one can approach the company / its R&T Agent.



Pledging



39. Can one pledge dematerialised securities?



Yes. In fact, pledging dematerialised securities is easier and more advantageous as compared to pledging physical securities.



40. What should one do to pledge electronic securities?



The procedure to pledge electronic securities is as follows:



· Both investor (pledgor) as well as the lender (pledgee) must have depository accounts with the same depository;

· Investor has to initiate the pledge by submitting to DP the details of the securities to be pledged in a standard format ;

· The pledgee has to confirm the request through his/her DP;

· Once this is done, securities are pledged.

· All financial transactions between the pledgor and the pledgee are handled as per usual practice outside the depository system.



41. How can one close the pledge after repayment of loan?



After one has repaid the loan, one can request for a closure of pledge by instructing the DP in a prescribed format. The pledgee on receiving the repayment will instruct his DP accordingly for the closure of the pledge.



42. Can one change the securities offered in a pledge?



Yes, if the pledgee [lender] agrees, one may change the securities offered in a pledge.



43. Who would receive the corporate benefits on the pledged securities?



The securities pledged are only blocked in the account of pledgor in favour of the pledgee. The pledgor would continue to receive all the corporate benefits.



Transaction Statement



44. How does one know that the DP has updated the account after each transaction?



The DP gives a Transaction Statement periodically, which will detail current balances and various transactions made through the depository account. If so desired, DP may provide the Transaction Statement at intervals shorter than the stipulated ones, probably at a cost.



45. At what frequency will the investor receive his Transaction Statement from his DP?



DPs have to provide transaction statements to their clients once in a month, if there are transactions and once in a quarter, if there are no transactions.



Moreover, DPs can provide transaction statement in electronic form under digital signature subject to their entering into a legally enforceable arrangement with the BOs to this effect.



46. What is to be done if there are any discrepancies in transaction statement?



In case of any discrepancy in the transaction statement, one can contact his/her DP. If the discrepancy cannot be resolved at the DP level, one should approach the Depository.



47. Whom should one contact in case of any investor complaint / problem / query?



In case of any investor complaint / problem / query one may first contact his DP. If DP is unable to solve the complaint / problem / query one should approach concerned depository. If one is not satisfied one may approach SEBI. One may also approach SEBI directly.



Lending and borrowing of demat securities



48. What is Lending and Borrowing of Securities?



If any person required to deliver a security in the market does not readily have that security, he can borrow the same from another person who is willing to lend as per the Securities Lending and Borrowing Scheme.



49. Can lending and borrowing be done directly between two persons?



No. Lending and borrowing has to be done through an 'Approved Intermediary' registered with SEBI. The approved intermediary would borrow the securities for further lending to borrowers. Lenders of the securities and borrowers of the securities enter into separate agreements with the approved intermediary for lending and borrowing the securities. Lending and borrowing is effected through the depository system.



50. Can I lend the securities lying in my account?



Yes. You can lend your securities through Approved Intermediaries registered with SEBI.



51. How would I lend my demat securities?



You may enter into an agreement with the approved intermediary to be a lender under this scheme. After that, you may lend securities any time by submitting lending instruction to your DP.



52. How would I get back the securities lent by me?



Intermediary may return the securities at any time or at the end of the agreed period of lending. Intermediary has to repay the securities together with any benefits received during the period of the loan.



53. How would I receive the corporate benefits which would accrue on these securities during the period of lending?



The benefits will be given to the Intermediary/borrower. However, whenever the securities are being returned / recalled. Intermediary/borrower will return the securities together with benefits received.



Nomination



54. Who can nominate?



Nomination can be made only by individuals holding beneficiary accounts either singly or jointly. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate.





55. Who can be a nominee?



Only an individual can be a nominee. A nominee shall not be a society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder.



Transmission of demat securities



56. What is transmission of demat securities?



Transmission is the process by which securities of a deceased account holder are transferred to the account of his legal heirs / nominee. Process of transmission in case of dematerialised holdings is more convenient as the transmission formalities for all securities held in a demat account can be completed by submitting documents to the DP, whereas in case of physical securities the legal heirs/nominee/surviving joint holder has to independently correspond with each company in which securities are held.



57. In the event of death of the sole holder, how the successors should claim the securities lying in the demat account?



The claimant should submit to the concerned DP an application Transmission Request Form (TRF) along with the following supporting documents



1. In case of death of sole holder where the sole holder has appointed a nominee



Notarised copy of the death certificate



2. In case of death of the sole holder, where the sole holder has not appointed a nominee



Notarised copy of the death certificate



Any one of the below mentioned documents -

Succession certificate

Copy of probated will

Letter of Administration



The DP, after ensuring that the application is genuine, will transfer securities to the account of the claimant.



The major advantage in case of dematerialised holdings is that the transmission formalities for all securities held with a DP can be completed by interaction with the DP alone, unlike in the case of physical share certificates, where the claimant will have to interact with each Issuing company or its Registrar separately.







Inter Depository Transfers



58. If my depository account is with NSDL/CDSL, can I receive my securities from an account holder having account with the other depository in India?



Yes. Inter depository transfers are possible.