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 FAQ - Demat

 
    What is 'Demat' and what are its benefits?
    How does the Depository System operate?
    How do I demat my shares?
    Once my shares are dematted, can I ever get them converted into physical shares?
    What are the charges to be paid to demat one's physical shares? Will it be paid by the
       company or do I have to pay for it?
    I have purchased some shares in paper form. Can I directly give the share certificate(s) to my
       Depository Participant for dematting them in my favour
?
    Is it a fact that shares are to be traded compulsorily in Demat Form? Do I have the option of
       holding them in physical form?
    How do I get my dividends on dematted shares? Will I get the Annual Report after I demat my
       shares and would I be able to attend the AGM?
    What are the chances of any fraud/disputes in using a demat account ? Whom should I
       approach in such cases?
  
    Can I pledge my shares in demat form for the purpose of availing any funding /loan
       arrangement with my bankers?
 
     
 
What is Demat and what are its benefits?

Dematerialisation ('Demat' in short form) signifies conversion of a share certificate from its present physical form to electronic form for the same number of holding. It is a direct application of scope provided by the tremendous progress made in the area of Information Technology whereby voluminous and cumbersome paper work involved in the scrip based system is eliminated. It offers scope for paperless trading through state-of-the-art technology, whereby share transactions and transfers are processed electronically without involving any share certificate or transfer deed after the share certificates have been converted from physical form to electronic form.
 
Demat attempts to avoid the time consuming and complex process of getting shares transferred in the name of buyers as well its inherent problems of bad deliveries, delay in processing/fraudulent interception in postal transit, etc.Dematerialisation of shares is optional and an investor can still hold shares in physical form. However, he/she has to demat the shares if he/she wishes to sell the same through the Stock Exchanges. Similarly, if an investor purchases shares, he/she will get delivery of the shares in demat form.
 
The Depositories Act, 1996 has been enacted to regulate the matters related and incidental to the operation of Depositories and demat operations. Two Depositories are in operation - National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL)

 

 

 

   
 



How does the Depository System operate?

The operations in the Depository System involve the participation of a Depository, Depository Participants, Company/Registrars and Investors. The company is also called the Issuer.

A Depository (NSDL and CDSL) is an organisation like a Central Bank, i.e. Reserve Bank where the securities of an investor are held in electronic form, through Depository participants.

A Depository Participant is the agent of the Depository and is the medium through which the shares are held in the electronic form. They are also the representatives of the investor, providing the link between the investor and the company through the Depository.

To draw analogy, the Depository system functions very much like the banking system. A bank holds funds in accounts whereas, a Depository holds securities in accounts for its clients. A bank transfers funds between accounts whereas, a Depository transfers securities between accounts.

In both systems, the transfer of funds or securities happens without the actual handling of funds or securities. Both the banks and the Depository are accountable for safe keeping of funds and securities respectively. The company has to sign an Agreement with NSDL/CDSL (the depositories) and install the necessary hardware/software for operations.


 
   
 


How do I demat my shares?

First, you will have to open an account with a Depository Participant(DP) and get a unique Client ID number. Thereafter, you will have to fill up a Dematerialisation Request Form (DRF) provided by the DP and surrender the physical shares intended to be dematted to the DP. The DP upon receipt of the shares and the DRF, will send an electronic request to the Company / Registrars through the Depository for confirmation of demat. Each request will bear a unique transaction number. The DP will simultaneously surrender the DRF and the shares to the Company/Registrars with a covering letter requesting to confirm the demat. The Company/Registrars after necessary verification of the documents received from the DP and if found in order will confirm demat to the Depository. This confirmation will be passed on from the Depository to the DP, which holds your account. After receiving this confirmation from the Depository, the DP will credit the account with the shares so dematerialised. The DP will hold the shares in the dematerialised form thereafter on your behalf. And you will become beneficial owner of these dematerialised shares.


 
   
 


Once my shares are dematted, can I ever get them converted into physical shares?


If you are holding shares in electronic form, you still have the option to convert your holding in physical form by submitting a Rematerialisation Request Form (RRF) through your DP in the same manner as Dematerialisation. Upon receipt of such request from your DP, the Company/Registrars will issue share certificate(s) for the number of share(s) so rematerialised.

 
   
 


What are the charges to be paid to demat one's physical shares? Will it be paid by the company or do I have to pay for it?

The charges for demat have to be borne by the shareholder. The charges differ from DP to DP and therefore you will have to choose your DP for the same.


 
   
 

I have purchased some shares in paper form. Can I directly give the share certificate(s) to my Depository Participant for dematting them in my favour?

Prior to dematting your shares, they have to be registered in your favour. Hence, you have to necessarily lodge the share certificates with a duly executed transfer deed for registration of shares in your favour which can be subsequently dematerialized.


 
   
 

Is it a fact that the shares are to be traded compulsorily in Demat Form? Do I have the option of holding them in physical form?

Yes. the shares of most companies are to be compulsorily traded in demat form.However you can still buy shares in physical form upto 500 (through odd lot window facility provided by the Mumbai Stock Exchange) and send the same for transfer. After the transfer is registered in your favour,the share certificates in physical form will be forwarded to you.


 
   
 



How do I get my dividends on dematted shares? Will I get the Annual Report after I demat my shares and would I be able to attend the AGM?

The Depositories (NSDL/CDSL) will provide the list of demat account holders and the number of shares held by them in electronic form on the Record date to the company /registrar (known as Benpos). On the basis of Benpos, the company concerned will issue dividend warrants in favour of the demat account holders. The rights of the shareholders holding shares in demat form are at par with the holders in physical form. Hence you will be eligible to get the Annual Report and will have the right to attend the AGM as a shareholder.


 
   
 

What are the chances of any fraud/disputes in using a demat account? Whom should I approach in such cases?


Common risk factors applicable to trading in physical shares like mismatch in signatures, loss in postal transit, etc., are absent since the dematted shares are traded scrip less. However, in the unlikely event of any other dispute, the concerned Stock Exchange and/or Depository Custodian viz. NSDL/CSDL or SEBI would have to be approached for resolving such issues.

 

 
   
 



Can I pledge my shares in demat form for the purpose of availing any funding/loan arrangement with my bankers?

Yes. You will have to contact your DP for this.