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1 DEMATERIALIZATION OF SECURITIES 2014 Chapter 1 Introducon-Investment The concept of investment has different meaning. “Investment is the employment of funds with the aim of geng return on it”. It is the commitment of funds which have been saved from the current consumpon with the hope that some benefits will receive in future. Thus, it is a reward for waing for money. Savings of the people are invested in assets depending on their risk and return. “Investment is also parng with one’s money to be used by another person, for producvity acvity”. It means giving a loan or contributes to the equity i.e. ownership capital of a company. Thus, investment means conversion of money into a monetary assets or a claim on future money for some return on it. This return is for saving, i.e. parng with saving or liquidity and also for taking risk involving the uncertainty about the actual return, ming of waing and cost of geng back of funds and risk of variability of returns. William F. Sharpe defined the term of investment as “the sacrifice of current dollar for future dollars” . This two involves two different aributes. One is the sacrifice that takes place in the present and which is certain, uncertain. In some cases the element of me predominates, such as government bonds. In other case risk is the dominant aribute such as equity shares. However, both me and risk are important. One makes investment for a return higher than what he can get by keeping money in a bank. It is a common knowledge in finance that money is scarce and
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DEMATERIALIZATION OF SECURITIES

DEMATERIALIZATION OF SECURITIES2014

Chapter 1Introduction-Investment The concept of investment has different meaning. Investment is the employment of funds with the aim of getting return on it. It is the commitment of funds which have been saved from the current consumption with the hope that some benefits will receive in future. Thus, it is a reward for waiting for money. Savings of the people are invested in assets depending on their risk and return. Investment is also parting with ones money to be used by another person, for productivity activity. It means giving a loan or contributes to the equity i.e. ownership capital of a company. Thus, investment means conversion of money into a monetary assets or a claim on future money for some return on it. This return is for saving, i.e. parting with saving or liquidity and also for taking risk involving the uncertainty about the actual return, timing of waiting and cost of getting back of funds and risk of variability of returns. William F. Sharpe defined the term of investment as the sacrifice of current dollar for future dollars. This two involves two different attributes. One is the sacrifice that takes place in the present and which is certain, uncertain. In some cases the element of time predominates, such as government bonds. In other case risk is the dominant attribute such as equity shares. However, both time and risk are important.One makes investment for a return higher than what he can get by keeping money in a bank. It is a common knowledge in finance that money is scarce and the investors want to maximize their return, but the return is higher, if the risk is higher. Thus, risk and return go together and they have a tradeoff. All investments may be risky to some degree or other. Therefore, the art of investment is to see that the return is maximized with the minimum of risk. If the investor keeps his money in bank, he takes the least risk, as the money is safe and he also runs the risk that return in real terms, adjusted for inflation is negative or small and even if positive, it may not come up to expectations.

Avenues for investments Wide varieties of investment avenues are now available in India. An investor can himself select the best avenue after studying the merits and demerits of different avenues. Even financial advertising, newspaper supplements on financial matters and investment journals offer guidance to investors in the selection of suitable investment avenues.Investment avenues are the outlets of funds. There are variety of investment avenues or alternatives. Investors are free to select any one of more alternative avenues depending upon their needs. All categories of investors are equally interested by them. In India, investment alternatives are continually increasing along with the new developments in the financial markets. Investment is now possible in corporate securities, public provident fund, mutual fund etc. thus, wide variety of investment avenues are now available to the investors. However, the investors should be very careful about their hard earned money. An investor can select the best avenue after studying the merits and demerits of the following investment alternatives:

1. Shares 2. Debentures and government bonds 3. Bank deposits4. LIC insurance schemes1. Shares:Share means a share in the share capital of company. A company is a business organization. It is registered as per companies Act, 1956. Every company has share capital. The share capital of accompany is divided into number of equal parts and each part is known as a share. A public limited company has a complete three stage. The first is registration. The second is raising capital and the third is commencement of business. A public limited company issues shares to the public for raising capital. The first public issue is known as initial public offerings (IPO). The shares can be issue at par premium or discount. Each share has a face value of Rs.1, 2, 5 or 10. In order to issue shares a prospectus is got approved from securities and exchange board of India (SEBI). These shares are listed with the stock exchange so that the shareholders can sale these shares in the markets. The company has to make an application to the stock exchange for listing of shares. There are two types of shares, equity shares and preference shares. Preference shares are those shares which has first preference for payment of dividend and refund of capital in case of winding up. Equity shares are those shares which are not preference shares. Preference shares are not popular in India. Very few companies have issued preference shares. The preference shares may be cumulative participating and convertible. The shares are also called as stock. Nowadays, shares are issued in Demat form. It means shares are credited to a separate account of applicant opened with depository participant. This is also called paperless security because shares are issued through book building process. Book building is a method of public issue of shares by a company in which the price is determined by the investors subject to a price band or range of prices given by the company. Investment of shares is more risky because the share prices go on changing day by day. Today, the market is more volatile means more fluctuating. The shares prices may go up or go down. If the stock market falls the share prices will go down and the investor will loose money in the investment. However, the return on investment in shares is higher. The returns on investment in shares is in the form of regular dividend, capital appreciation, bonus and rights. There is also liquidity in this kind of investment. The shares can be sold in stock market and money can be collected within 3 to 4 days. Investment in shares is not a tax saving investment. 2. Debentures and Government bonds:-A debenture is a document issued by a company as an evidence of a debt. It is a certificate issued by a company under its seal, acknowledging a debt due by it to its holders. The term debenture includes debenture stock, bonds and any other securities issued by a company. The companies Act provide that a company can raise loans from the public by issue of debentures. The debenture holder gets interest on the debenture which is fixed at the time of issue. The debenture are also issued to the public just like issue of share. However, there is a need for credit rating before issue of debentures or bonds. Bonds are issued by the private sector companies. Therefore, bonds may be tax saving but debentures are not tax saving investment.The companies owned capital as well as borrowed capital in their capital structure as compared to equity shares because debenture holders have no say in the management of the company and interest on debentures allowed as a business expense for the purposes. The debentures are considered as secured loan. There is no much risk in the investment in debentures as compared to shares. The return on the debentures is also reasonable and stable. The debentures are also listed with the stock exchanges and can be traded in the stock market. However, the prices of debentures are not much volatile.The debenture, being a loan, is redeemable at a certain period of maturity, otherwise it can be irredeemable. The debentures can be convertible non-convertible. If a debenture is convertible into shares at maturity, it is called convertible. The convertible debentures may be partly convertible. Convertible debentures became popular in the last decade. The method of raising long term funds through debentures is not much popular in India. A very few company have issued debentures and very few companies debentures or bonds are traded in the stock market. The debentures were also not popular till recent years.

3. Bank deposits:-Investment of surplus money in bank deposits is a quite popular among the investors collects working capital for their business through deposits called bank deposits. The deposits are given by the customers for specific period and the bank pays interest on them. In India, all types of bank accept deposits by offering interest. The deposits can be accepted from individuals, institutions and even business enterprises. The business and profitability of banks spend on deposit collection. For depositing money in the bank, an investor/ depositor has to open an account in bank. Different types of deposit accounts are: (1) current account (2) savings bank account (3) fixed deposit account, and (4) recurring deposit account. This indicates the use of bank deposit as an avenue of investment by Indian investors. NRIs and NREs can keep money in nationalized and other banks as savings or fixed deposits. In case of NRI and NRE account, the bank interest is not taxable. Some banks offer one percent higher interest rate on NRI/NRE accounts.4. Life insurance policies:-Life insurance business was nationalized in India since long (1956) and in sun by the life insurance corporation of India. In addition, we have also Postal life Insurance Scheme run by the postal department LIC is responsible for the expansion of the insurance business in India. In addition, it plays an important role in collecting the savings of the people. It gives protection and acts as a method of compulsory savings. LIC is one of the avenues for investment of money out of regular income. It also gives protection to the family members of the policyholder. Life insurance business is no more monopoly of LIC. Private sector is also allowed to participate in the insurance business.Advantages of Investment in Life Insurance Schemes:1. Protection of family members through financial support in the case of death of policyholder.2. Investment in life insurance schemes serves as a provision for old age. 3. It acts as a method of compulsory savings over a long period out of regular income. 4. Investment in life insurance provides loan facility from banks. 5. LIC now gives bonus to policyholders on yearly basis this adds to maturity value of policy.6. Investment in life insurance schemes gives tax benefit. This tax benefit is available even when the policy is taken on the name of investors wifes son or daughter.7. Investment in life insurance gives mental peace to investors in this age when our life exposed to various risks, uncertainties and dangers.LIC issues different life policies such as whole life policies such as whole life policy, endowment policy, money back policy, etc.

Chapter 2 SecuritiesThe company or other entity issuing the security is called theissuer. A country's regulatory structure determines what qualifies as a security. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions.Securities may be represented by a certificate or, more typically, "non-certificated", that is in electronic or "book entry" only form. Certificates may bebearer, meaning they entitle the holder to rights under the security merely by holding the security, orregistered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary. They include shares of corporatestockormutual funds,bondsissued by corporations or governmental agencies,stock optionsor other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible.TYPES OF SECURITIES1. SharesA share is an equity security. Its owner owns one part of the capital of the company which has issued the shares in question. The shares enable the shareholder the right to take part in the decision-making in the company. If the latter operates with profit, the owners of shares may receive dividends. The amount of the dividend is decided upon by the shareholders at a General Meeting of the Shareholders.2. BondsA bond is a debt security. When purchasing a bond, you have no right to participate in the company's decision making but are entitled to the reimbursement of the principal and the interest. There are several ways of repayment as the companies may decide that the principal be paid in regular annual installments or on the maturity of bonds. The interest may be refunded in a fixed amount or may be variable (inflation rate or foreign currency). The issuers pay the interest once every year or once every half-year (on the coupon maturity date).3. Open-end fundsAn open-end fund stands for a diversified portfolio of securities and similar investments, chosen and professionally managed by a fund management company. Since the fund does not have fixed capital but is rather 'open ended', it grows together with new investors joining and thus funding it. Open-end funds can invest in domestic and international securities, in either shares, bonds or other investment vehicles. Depending on the portfolio, the fund's risk and returns vary accordingly.3.1. Trading in open-end fundsOpen-end funds do normally not trade on exchanges, and there are indeed fewExchanges worldwide where open-end fund shares can be bought; but there areExceptions. Usually, open-end funds are bought through fund management companies. Investors can invest into the fund via a postal or a standing order, being charged with an entry fee upon each new purchase and with an exit fee when they decide to sell their fund units. The other option, however, is to buy through a brokerage firm; trading in open-end fund shares on an exchange involves no entry or exit fees for investors, as they are only bound by broker's fees.4. Index open-end fundsWith an index open-end fund, fund management companies allot investors assets to a basket of securities making up a chosen index that thus tracks the yield of the mentioned index. While the big investors may invest directly into a fund, minor investors can only trade in fund shares on stock exchanges. Due to the possibility of arbitrage, the market price of index open-end fund shares does usually not stray from its NAV for more than 1%. 4.1. Trading in index open-end fund shares on primary market Before purchasing index open-end fund units, a declaration of accession must be signed. After that, assets are transferred to a special fund account, open at a custodian bank. Upon each purchase and sale, the fund charges appropriate entry and exit fees (max 3% from purchase/sale). Fund investors are also charged a management fee (0.5% of the average annual fund NAV) and the costs of custodian services (0.1% of the average annual fund NAV). Each purchase or sale within the fund on the primary market results in a changed number of index open-end fund shares, which in turn affects the changes in the size of fund's assets. Index open-end fund shares are purchased and sold at NAV, as calculated by the management company.4.2. Trading in index open-end fund shares on secondary marketMinor investors can buy index open-end fund shares on the exchange at the price that forms on the market, without entry or exit fees, being charged solely brokerage fees. Exchange trading of index open-end fund shares does not affect the size of capital; while the owners of index open-end fund shares change, the funds assets remain unaffected.5. Close-end funds (ID)ID is a close-end investment fund investing its capital into securities by other issuers. Investment Company is managed by a management company (DZU) which decides which securities to include in the fund's portfolio. The DZU is paid a management fee by the investment company; it usually amounts to 1-2% per year in Slovenia. The value of shares of the close-end funds is closely correlated to the value of the company's.

Chapter3 Bank Abankis afinancial intermediarythat acceptsdepositsand channels those deposits into lendingactivities, either directly by loaning or indirectly throughcapital markets. A bank links together customers that have capital deficits and customers with capital surpluses.Due to their importance in thefinancial systemand influence on nationaleconomies, banks are highly regulatedin most countries. Most nations have institutionalized a system known as fractional reserve banking, in which banks hold only a smallreserveof the funds deposited and lend out the rest for profit. They are generally subject tominimum capital requirementsbased on an international set of capital standards, known as theBasel Accords. Banking in its modern sense evolved in the 14th century in the rich cities ofItaly but in many ways was a continuation of ideas and concepts ofcreditandlendingthat had its roots in theancient world. In thehistory of banking, a number ofbanking dynastieshave played a central role over many centuries. Theoldest existing bankisMonte dei Paschi di Siena(the oldest surviving bank in the world and Italy's third largest bank. Founded in 1472).HistoryThe origins of modern banking can be traced to medieval and earlyRenaissance Italy, to the rich cities in the north likeFlorence,Lucca,Siena,VeniceandGenoa. TheBardiandPeruzzifamilies dominated banking in 14th century Florence, establishing branches in many other parts ofEurope.One of the most famous Italian banks was theMedici Bank, set up byGiovanni di Bicci de' Mediciin 1397. The earliest known state deposit bank,Banco di San Giorgio(Bank of St. George), was founded in 1407 atGenoa,Italy. Modern banking practice, includingfractional reserve bankingand the issue of banknotes, emerged in the 17th and 18th centuries. Merchants started to store their gold with thegoldsmithsofLondon, who possessed private vaults, and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issuedreceiptscertifying the quantity and purity of the metal they held as a bailee; these receipts could not be assigned; only the original depositor could collect the stored goods.Gradually the goldsmiths began to lend the money out on behalf of thedepositor, which led to the development of modern banking practices;promissory notes(which evolved into banknotes) were issued for money deposited as a loan to the goldsmith. The goldsmith paid interest on these deposits. Since the promissory notes were payable on demand, and the advances (loans) to the goldsmith's customers were repayable over a longer time period, this was an early form offractional reserve banking. The promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money backed by the goldsmith's promise to pay, allowing goldsmiths to advance loans with little risk ofdefault.Thus, the goldsmiths of London became the forerunners of banking by creating new money based on credit.TheBank of Englandwas the first to begin the permanent issue ofbanknotes, in 1695.TheRoyal Bank of Scotlandestablished the first overdraft facility in 1728.By the beginning of the 19th century abankers' clearing housewas established in London to allow multiple banks to clear transactions. TheRothschild'spioneered international finance on a large scale, financing the purchase of theSuez Canalfor the British government.Theoldest bank still in existenceisMonte dei Paschi di Siena, headquartered inSiena,Italy, which has been operating continuously since 1472.It is followed byBerenberg Bankof Hamburg (1590)andSveriges Riks bankof Sweden (1668).Origin of the wordThe wordbankwas borrowed inMiddle EnglishfromMiddle Frenchbanque, from OldItalianbanca, fromOld High Germanbanc, bank"bench, counter". Benches were used as desks or exchange counters during the RenaissancebyFlorentinebankers, who used to make their transactions atop desks covered by green tablecloths.

Function

These functions of banks are explained in following paragraphs of this article. A. Primary Functions of Banks :-The primary functions of a bank are also known as banking functions. They are the main functions of a bank.These primary functions of banks are explained below.1. Accepting Deposits:-The bank collects deposits from the public. These deposits can be of different types, such as:-a. Saving Depositsb. Fixed Depositsc. Current Depositsd. Recurring Depositsa. Saving Deposits:- This type of deposits encourages saving habit among the public. The rate of interest is low. At present it is about 5% p.a. Withdrawals of deposits are allowed subject to certain restrictions. This account is suitable to salary and wage earners. This account can be opened in single name or in joint names. b. Fixed Deposits: - Lump sum amount is deposited at one time for a specific period. Higher rate of interest is paid, which varies with the period of deposit. Withdrawals are not allowed before the expiry of the period. Those who have surplus funds go for fixed deposit.c. Current Deposits: - This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is paid. In fact, there are service charges. The account holders can get the benefit of overdraft facility.d. Recurring Deposits:- This type of account is operated by salaried persons and petty traders. A certain sum of money is periodically deposited into the bank. Withdrawals are permitted only after the expiry of certain period. A higher rate of interest is paid.2. Granting of Loans and AdvancesThe bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is its profit.The types of bank loans and advances are :-a. Overdraftb. Cash Creditsc. Loansd. Discounting of Bill of Exchangea. Overdraft:- This type of advances are given to current account holders. No separate account is maintained. All entries are made in the current account. A certain amount is sanctioned as overdraft which can be withdrawn within a certain period of time say three months or so. Interest is charged on actual amount withdrawn. An overdraft facility is granted against a collateral security. It is sanctioned to businessman and firms.b. Cash Credits:- The client is allowed cash credit upto a specific limit fixed in advance. It can be given to current account holders as well as to others who do not have an account with bank. Separate cash credit account is maintained. Interest is charged on the amount withdrawn in excess of limit. The cash credit is given against the security of tangible assets and / or guarantees. The advance is given for a longer period and a larger amount of loan is sanctioned than that of overdraft.c. Loans:- It is normally for short term say a period of one year or medium term say a period of five years. Now-a-days, banks do lend money for long term. Repayment of money can be in the form of installments spread over a period of time or in a lumpsum amount. Interest is charged on the actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly lower than what is charged on overdrafts and cash credits. Loans are normally secured against tangible assets of the company.d. Discounting of Bill of Exchange:- The bank can advance money by discounting or by purchasing bills of exchange both domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of the bill by deducting usual discount charges. On maturity, the bill is presented to the drawee or acceptor of the bill and the amount is collected.B. Secondary Functions of Banks :- The bank performs a number of secondary functions, also called as non-banking functions.These important secondary functions of banks are explained below.1. Agency Functions:- The bank acts as an agent of its customers. The bank performs a number of agency functions which includes :-a. Transfer of Fundsb. Collection of Chequesc. Periodic Paymentsd. Portfolio Managemente. Periodic Collectionsf. Other Agency Functionsa. Transfer of Funds:- The bank transfer funds from one branch to another or from one place to another.b. Collection of Cheques:- The bank collects the money of the cheques through clearing section of its customers. The bank also collects money of the bills of exchange.c. Periodic Payments:-On standing instructions of the client, the bank makes periodic payments in respect of electricity bills, rent, etc.d. Portfolio Management:- The banks also undertakes to purchase and sell the shares and debentures on behalf of the clients and accordingly debits or credits the account. This facility is called portfolio management.e. Periodic Collections:- The bank collects salary, pension, dividend and such other periodic collections on behalf of the client.f. Other Agency Functions:-They act as trustees, executors, advisers and administrators on behalf of its clients. They act as representatives of clients to deal with other banks and institutions.2. General Utility FunctionsThe bank also performs general utility functions, such as :-a. Issue of Drafts, Letter of Credits, etc.b. Locker Facilityc. Underwriting of Sharesd. Dealing in Foreign Exchangee. Project Reportsf. Social Welfare Programmesa. Issue of Drafts and Letter of Credits: - Banks issue drafts for transferring money from one place to another. It also issues letter of credit, especially in case of, import trade. It also issues travellers' cheques.b. Locker Facility: - The bank provides a locker facility for the safe custody of valuable documents, gold ornaments and other valuables.c. Underwriting of Shares:-The bank underwrites shares and debentures through its merchant banking division.d. Dealing in Foreign Exchange:-The commercial banks are allowed by RBI to deal in foreign exchange.e. Project Reports: - The bank may also undertake to prepare project reports on behalf of its clients.f. Social Welfare Programmes: - It undertakes social welfare programmes, such as adult literacy programmes, public welfare campaigns, etc.

Chapter4 Bank accountsBank deposits serve different purposes for different people. Some people cannot save regularly; they deposit money in the bank only when they have extra income. The purpose of deposit then is to keep money safe for future needs. Some may want to deposit money in a bank for as long as possible to earn interest or to accumulate savings with interest so as to buy a flat, or to meet hospital expenses in old age, etc. Some, mostly businessmen, deposit all their income from sales in a bank account and pay all business expenses out of the deposits. Keeping in view these differences, banks offer the facility of opening different types of deposit accounts by people to suit their purpose and convenience.A. Demand depositsThe sum of money that is given to a bank but can be withdrawn as per the requirement of the depositor. Amounts that are lying in the savings and current accounts are known as demand deposits because they can be used at any point of time.

1. Savings Bank Account: If a person has limited income and wants to save money for future needs, the Saving Bank Account is most suited for his purpose. This type of account can be opened with a minimum initial deposit that varies from bank to bank. Money can be deposited any time in this account. Withdrawals can be made either by signing a withdrawal form or by issuing a cheque or by using ATM card. Normally banks put some restriction on the number of withdrawal from this account. Interest is allowed on the balance of deposit in the account. The rate of interest on savings bank account varies from bank to bank and also changes from time to time. A minimum balance has to be maintained in the account as prescribed by the bank.

2. Current Deposit Account: Big businessmen, companies and institutions such as schools, colleges, and hospitals have to make payment through their bank accounts. Since there are restrictions on number of withdrawals from savings bank account, that type of account is not suitable for them. They need to have an account from which withdrawal can be made any number of times. Banks open current account for them. Like savings bank account, this account also requires certain minimum amount of deposit while opening the account. On this deposit bank does not pay any interest on the balances. Rather the accountholder pays certain amount each year as operational charge. For the convenience of the accountholders banks also allow withdrawal of amounts in excess of the balance of deposit. This facility is known as overdraft facility. It is allowed to some specific customers and up to a certain limit subject to previous agreement with the bank concerned.

B. Time depositAtime deposit is a money deposit at abanking institutionthat cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money. In its strict sense, certificate deposit is different from that of time deposit in terms of its negotiability: CDs are negotiable and can be rediscounted when the holder needs some liquidity, while time deposits must be kept until maturity.

1. Fixed Deposit Account (also known as Term Deposit Account):- Many a time people want to save money for long period. If money is deposited in savings bank account, banks allow a lower rate of interest. Therefore, money is deposited in a fixed deposit account to earn a interest at a higher rate. Bank Deposit Account : This type of deposit account allows deposit to be made of an amount for a specified period. This period of deposit may range from 15 days to three years or more during which no withdrawal is allowed. However, on request, the depositor can encash the amount before its maturity. In that case banks give lower interest than what was agreed upon. The interest on fixed deposit account can be withdrawn at certain intervals of time. At the end of the period, the deposit may be withdrawn or renewed for a further period. Banks also grant loan on the security of fixed deposit receipt.

2. Recurring Deposit Account: This type of account is suitable for those who can save regularly and expect to earn a fair return on the deposits over a period of time. While opening the account a person has to agree to deposit a fixed amount once in a month for a certain period. The total deposit along with the interest therein is payable on maturity. However, the depositor can also be allowed to close the account before its maturity and get back the money along with the interest till that period. The account can be opened by a person individually, or jointly with another, or by the guardian in the name of a minor. The rate of interest allowed on the deposits is higher than that on a savings bank deposit but lower than the rate allowed on a fixed deposit for the same period. C. Miscellaneous depositsThe miscellaneous deposits are the deposits which is not used by regular customers:*DEMATERIALIZATION (D-MAT) It is a transfer of physical form of share in to electronic form. just like savings account for storing shares. It is compulsory for investors for day-to-day trading. It provide facility to open a demat account in joint name.in this closure of account is possible but addition and deletion of name is not possible.

Chapter 5DematOne of the methods for preventing all the problems that occur with physical securities is through dematerialization. India has adopted the demat route in which the book entry is made electronically against securities that are cancelled. The share certificates are shredded and a corresponding credit entry of the number of securities is made in the account opened with the depository participant (DP).The securities held by an dematerialization from are fungible. They do not bear any distinguishable features like distinctive number, folio number or certificate number. once the shares are dematerialized, they lost their identification features in terms of shares certificate distinctive number and folio numbers. Title to the securities owned is in the terms of number of share securities and not in terms of distinctive number, certificate numbers etc. Each security is identified in the depository system by ISIN and shorten name. for example, a person owning 200 shares in XYZ Ltd. In physical form will record his ownership as below:Company Name: XYZ Ltd.No. of Shares: 200Distinctive Nos: 932654701 or 932654900Certificate No: XYZ001263Folio No: X658542In NSDL depository system, the record of ownership will be shown as: INE001A0103 XYZ by demat 200 International Securities Identification Number (ISIN) Each of the securities dematerialized in the NSDL? CDSL depository bears a distinctive ISIN- an identification number. International securities identification number (ISIN) is a unique identification number for each security issued in any of the international standards organization (ISO) member countries in accordance with the ISIN standard (ISO6166). ISO6166 was developed for the use in an international (cross- border) as well as domestic traders. ISIN is a 12-character long identification mark. It has three components a pre-fix. A basic number and a check digit. The pre-fix is a two-letter country code as stated under ISO 3166ISIN (ISIN for India). The basic number companies nine alphanumeric characters. The check digit at the end of the ISIN is computed according to the modulus 10 Double-Add-Double. It establishes that the ISIN is a valid. Securities issued by the same company, issued at different times or carrying different sights, terms and conditions are considered different securities for the purpose of allocating ISIN and are allotted distinct ISINs. In India, SEBI assigns ISIN to various publically traded securities. Different ISINs are allocated to the physical and dematerialized securities of the same issue. To illustrate, ISIN INE 475c 01 012 has the following break up: IN -India, E company, Last digit check digit, First four digits 475c company serial number, 01 equity(it can be mutual funds units or debts), 01 issue no, 2 check digit.The third digit (E in the above example) may be E, F, A, B, or 9. Each one carries the following meaning:- E- company, F- mutual fund unit, A- central government securities security, B- state with rights which are different from equity shares bearing INE number.Whenever dealing with ISIN number. It is important to pay special attention to the third digit. Securities that can be dematerializedThe depository system in India is governed by the rules made by the market regulator SEBI. According to the SEBI (depositories and participants) Regulations, 1996, the following securities are eligible for holding in dematerialized form.1. Shares, scrips, stocks, bonds debentures, debenture stock or other marketable securities of similar nature of any incorporated company or body corporate including underlying share of ADRs and GDRs.2. Units of mutual funds, right under collective investment schemes and venture capital funds, commercial paper, certificate of deposit, securitized debt, money market investment and unlisted securities.

Perquisites for dematerialization request1. The registered holder of the securities should make the request.2. Securities to be dematerialized must be recognized by NSDL/ CDSL as eligible in other words. Only those securities whose ISIN has been activated by NSDL/ CDSL, can be dematerialized.3. The company / issuer should have established connectivity with NSDL only after such connectivity established that the securities of that company / issuer are recognized to be available for dematerialization.4. The holder of security should have a beneficiary account in the same name as it appears on the security certificates to be dematerialized.5. The request should be made in the prescribed dematerialization request form.

Transposition aim dematNSDL has amended its bye laws and business rules to enable investors to transpose names of the joint holders along with the process of dematerilsation through their DPs. Prior to this amendment. Investors having shares in joint names. But indifferent sequence were either required to open multiple accounts for each sequence or to effect the transposition directly with the issuer / R&T agent and then dematerialize their securities through their DPs. In case of transposition come dematerialization, the client can get the securities dematerialized in the same account if the names appearing on the certificates match with the names in which the account has been opened but are in a different order, by submitting the security certificates along with the transposition from and the dematerialization request form (DRF) to the DP.

Chapter 6 Advantages and disadvantages Advantages of dematerialization The biggest advantage is that when you buy demat shares, you can rest assured that there is no risk of their being fake, forged or stolen shares as it sometimes happen with shares held in the physical form. Moreover, in the case of demat shares you need not worry about bad deliveries.

In the case of demat shares there is also no stamp duty on transfer of shares. Neither is there a complicated transfer form to fill up. As a result, an investor not only saves money but it also freed from the tedious and repetitive paperwork, which invariably accompanies the buying, and selling of shares in the physical form.The stock exchanges have now discarded the earlier concept of marketable lots, small lots, and old lots. This becomes possible only because of dematerialization of shares. Now even one share, no matter how small the denomination or how low the share price, can be bought or sold easily on the exchange. Demat is a big advantage for the small investor as it enables him to buy high-priced shares in small quantities which were earlier after out of his reach because a marketable lot of high- priced shares would usually involve a fairly large sum of money. Equally, demat enables the small investor to sell his odd lots and small lots of shares at market prices. Earlier, he would have been compelled to sell such lots at prices well below prevailing market price of the share.

Another big advantage of dematerialization of shares is that of nomination facility. This facility did not exist earlier in the case of physical share holdings; the law permits individuals to file a nomination form only in the case of a depository account. Even in the case of accounts held in the joint names, the filing of nomination forms is permitted. In the event of the death of any one of the joint holders, the shares held in the joint account will be transferred to the single depository account of the surviving holder. If the surviving holder does not have a single account, then he will be required to open one in order to receive the shares earlier held in the joint depository account. The nominee would get the shares only in case all the joint holder die. Nomination facility is, however, not available to companies, Hindu Undivided Families, partnership firms, societies, trusts, etc.In the case of dematerialized shares, change in your address no long requires your having to send separate letters to each individual company whose shares you hold. All you need to do is to inform your DP of any change in your address, and the Dp will send the new address to all the companies in which you hold shares. Your new address is then entered into the records of the company and the concerned depository.

In the case of dematerialized shares, bonus and rights shares are immediately transferred to your account with the DP as soon as they become due to you without any delay. When the shares are head in the physical form, the bonus/rights share certificates come through the post after a considerable delay, which could be as long as three to four weeks. There is also the danger of their getting lost in transit, being miss-delivered by the postman, or otherwise falling into the wrong hands.

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 accounts with nil holdings.

CAHPTER 7 Dematerialization process

Client / investor submit the DRF and physical certificates to DP. DP checks whether the securities are available for demat client defaces the certificates by stamping surrendered for dematerlisation DP punches two holes on the name of the company and draws two parallel line across the face of the certificate. 1. DPs provides dematerialization request forms (DRF) to their clients.2. The client completes the DRF in all respects and submits to the DP along with the security certificates to be dematerialized.3. The DP checks the DRF for validity, completeness and correctness. The following points should be checked particularly:-the security certificates sought to be dematerialized are to DRF.-the attach security certificates are marked with the word surrendered for dematerialization. This a precautionary measure to prevent misuse of share certificates anyone.-the certificates are not mutilated or defaced in a manner affected in a manner affecting any material information.-the name of client on DRF and the certificates is exactly the same as in the clients account in DPM. However, minor vacations in the name.2. DP enters the demat request in his system to be sent to NSDL/CDSL. DP dispatches the physical certificates along with the DRF to the R&T agent.3. NSDL/CDSL records the details of the electronic request in the system and forwards the request to the R&T agent.4. R&T agent, on receiving the physical documents and the electronic request, verifies and checks them. Once the R&T agent is satisfied, dematerialization of the concerned securities is electronically confirmed to NSDL/ CDSL.5. NSDL/CDSL credits the dematerialized securities to the beneficiary account of the investor and intimates the DP electronically. The DP issues of transaction to the client.Checklist for investorsWhile filling up the dematerialization request form, investors need to check:1. The DRF has to be obtained only from the DP with whom they have opened an account.2. The DRF has to be filed in duplicate/ triplicate as required by the DP.3. All the information asked in the form is mandatory and has to be filled.4. Separate forms should be filled for separate ISIN number of the company.5. Separate forms should be filled for lock-in and free securities.6. All the holders should sign the DRF form. Signatures should match with those of the specimens on the account opening form. However if the signature with the company R&T agent is different from the signature with the DP, the client may affix both the signatures.7. The order of the holders should be same as that in the account opening form.8. While submitting the shares they should be defaced by mentioning on it surrendered for dematerialization.9. After submitting the certificates, an acknowledgement slip duly signed but the DP should be collected.10. Demat request form for dematerializing government securities is different and is called DRF-GS.Checklist for DPBefore accepting the form and share certificate for the dematerialization the DP should check:1. Client has submitted the securities for dematerialization along with the dematerialization request form (DRF).2. No dematerialization request, other than from a registered holder of securities, has been entitled.3. The certificates submitted by the client dematerialization belong to the eligible list of securities admitted by the depository.4. Verify that the DRF submitted by the client has been filled completely and duly signed. The DP has to issue to the client an acknowledgement slip duly signed and stamped.5. Verify the signature of the client on the form compare it with the specimen available in its records. if the signature are different, the DP has to ensure proper identification of the client.6. NSDL issues circulars on caution to be exercised in respect of share belonging to some companies. such circulars should be referred to before accepting a demat request.7. If the form is in order, the request details are entered in its DPM and the DPM generates a dematerialization request number (DRN).8. The DRN so generated are entered in the space provided for the purpose in DRF. The details given in DRF should match with the details of the report generated by DPM and verified by a person other than the person who had entered the data. 9. The DRF is forwarded to the issuer or its R&T agent only after ascertaining that the number of certificates annexed with the DRF tallies with the number of certificates mentioned on the DRF within 7 days of its receipt. 10. The details of the certificates submitted for dematerialization with the details filled up are in consonance with the DRF.11. The client has marked the certificates submitted for dematerialization with the words surrendered for the dematerialization.12. The safety and security of the certificates submitted for dematerialization till the certificates were forward to the issuer or its R&T agent has to be ensured.13. Punch two holes on the company name on the security certificates before forwarding them to the issuer or its R&T agent.14. Ensure that the client has filled in a separate DRF for securities having distinct ISINs.15. Ensure that the client for has filled in a separate DRF for locked in and free securities having the same ISINs.16. Ensure that the client has submitted a separate DRF for each of his/their accounts maintained with the DP.17. DRF and certificates have to be sent to the correct address of the company where they are accepted. NSDL issues circulars giving information about the addresses where physical documents will be accepted.Precautions to be taken while processing DRF1. Ensure account to have the same sequence of names structure of holders and name structure as printed on the physical certificate.2. Ensure ISIN is activated 3. Separate DRF for:-party and fully paid up shares -locked and free holdings-holding locked in for different reasons-locked in holding having different release date-different ISINs of the company4. ISIN to be entered by DP5. All the joint holders to sign DRF6. Check DRF form with details on certificate.

Chapter 8 SEBI guidelines SEBI has taken various policy initiatives to popularize the demat concept. In order to help investors to dematerialize physical shares received but not yet registered in their name. SEBI has introduced a scheme called transfer-cum-demat. As per the guidelines, all companies that are inclued in the SEBI compulsory list have to offer transfer-cum-demat facility. Investors who have bought shares of these companies from the marked can send their shares to the company for simultaneous action of transfer-cum-demat with effect from February 12, 2013 this facility is applicable for shares upto 500 only. The relevant details of the guidelines are enumerated below.1. the issuer or its Register and Transfer (R&T) Agent, on completion of the process of registration shares submitted for transfer, has to intimate the investor providing an option to dematerialize such share. The investor intending to exercise the option of dematerializing shares has to send the dematerialization request within 30 days of the date of the option letter, failing which the issuer or its R&T Agent can dispatch the certificates. Requests received subsequent to dispatch of the certificates are rejected.2. Investors exercising the option of dematerializing the shares have to submit the following documents to the DP:*dematerialization request form (DRF)*original option letter received from the issuer or its R&T agent.3. DP shall affix its seal and signature on the original option letter.4. The DP has to execute the request for dematerialization in the Depository DP module (DPM).5. The DP has to dispatch of DRF along with the original option letter to the issuer or its R&T Agent and keep a copy of it for records.6. The issuer or its R&T Agent has to process the dematerialization request for its validity and verify the signatures on the DRF with those on the transfer deed.7. If the request is in order, the Issuer or its R&T Agent defaces the certificates with the word Dematerialized and confirms the dematerialization request.8. The issuer or its R&T Agent has to maintain a record of the securities certificates that have been dematerialized.9. If the request is rejected, the Issuer or its R&T agent has to dispatch the certificates to the investors.10. NSDL is required to obtain from the company a certificate from a Chartered Accountant or a company secretary that the company has complied with the guidelines.

chapterPrimary data

DATE OF VISIT: 24TH JUNE,2014.

PLACE OF VISIT: GHATKOPAR.

TOPIC OF VISIT: DEMATERIALISATION OF SECURITIES.

OBJECTIVE OF VISIT:1.To understand the concept of DEMATERIALISATION OF SECURITIES as per their point of view.2.To know the different benefits of DEMATERIALISATION OF SECURITIES.

OBSERVATION: As per the view of dematerialisation they provide demat A/C facility and basically concentraate on all of salaried and businessmean. As per SHCIL, there is no requirement of registration with stock exchange. Activites of demat is provided by DP. No calculations are done by SHCIL.There is requirement of licence for providing demat service as per deposirary Act and SEBI. For demat account opening, it takes four working days, which is done by broker by trading account. There is no need to maintain savings account for demat account opening there is no benefit for demat account holder other than account holders. The document required for opening demat account holder while opening an demat A/C are ID proof i.e. pan card, address proof in the name holder, cheque copy, Bank passbook 1st page and latest transaction page with this they try to provide their prompt services to their premium customers.

Conclusion Indian economies have been globalized and the capital markets have been linked to the international financial market. Foreign individuals and institutional investors have encouraged to participate into it. So, there is a need for raising the Indian Capital market in to the international standards in terms of efficiency and transparency. One such measure is the passing out of the Depository Act during the year 1996. Dematerialization of securities and under this system is one of the major steps aimed at improving and modernizing the capital market and enhancing the levels of investors protection measures which aims at eliminating the bad deliveries and forgery of shares and expediting the transfer of shares. 27The drawback of the old system and the pool proof measures sought to improve efficiency in transfer and transparency standards prompted to evaluated the functioning of the dematerialization process and to focus on the developments of the depository system in the Indian capital market. The study showed that there is a growth in the shares included in the dematerialization process both in terms of volume of shares and value of shares.

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