Demat Account - A Report on the procedure of opening a Demat Account
Demat Account - A Report on the procedure of opening it.
Introduction:
WHAT IS DEMATERIALIZATION?
Technology has brought about a drastic change in our everyday lives. The stock
markets too have not been left untouched by the change. In 1875, the Bombay Stock Exchange was founded with an open outcry floor trading exchange. Traders would stand on the floor and shout
prices of stocks for buying or selling. Then, money would be exchanged for physical receipts of the shares called the certificate. This led to a great amount of paperwork. Even the settlements of trade agreements took time because of the need to deliver the share certificates.
Much has changed since.
In 1996, dematerialization was embraced. Dematerialization is the process by which physical share certificates held by an investor are converted into an equivalent number of securities in electronic form and credited into the investor’s demat account.
In India, shares and securities are held electronically in a dematerialized(or "Demat") account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transacting shares.
Access to the Dematerialized account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the Dematerialized account are automatically made once transactions are confirmed and completed.
The market regulator, securities and exchange board of India (SEBI) mandates a demat account for share trading above 500 shares. As of April 2006, it became mandatory that any person holding a demat account should possess a permanent account number (PAN), and the deadline for submission of PAN details to the depository lapsed on January 2007.
Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account with its DP. In order to dematerialize certificates; an investor will have to first open an account with a DP and then request for the dematerialisation of certificates by filling up a dematerialisation request form [DRF], which is available with the DP and submitting the same along with the physical certificates. The investor has to ensure that before the certificates are handed over to the DP for demat, they are defaced by marking "Surrendered for Dematerialisation" on the face of the certificates.
Aim and Objective:
• To know the role of Demat Account .
• To know the procedure of opening DEMAT ACCOUNT.
Detail Report of Project: Procedure for Opening an Account :
Demat accounts are opened on the same lines as that of a Bank Account. Prescribed Account opening forms are available with the DP, needs to be filled in. Standard Agreements are to be signed by the Client and the DP, which details the rights and obligations of both parties
• The DP officials will make available the relevant account opening form (depending on whether the client is a retail investor or corporate client/clearing member) and specify the list of documents regarding references that should be submitted along with the form. It will also give a copy of the relevant agreement to be entered with the client, in duplicate.
• The client will submit the duly filled in account opening form and client has to visit personally for opening the account in DP. The DP officials have to do in person verification and affix the "IN PERSON VERIFICATION" stamp on the account opening form. It should also furnish such documents regarding references, as specified by the DP, along with the account opening form. After executing the agreement the client has to forward it to the DP.
• The DP officials will verify that the account opening form is duly filled in. It will also verify the enclosed documents, if any. Incomplete forms will be forwarded to the client for rectification.
• For Corporate Clients, the DP officials will verify if the board resolution for the authorized signatories is enclosed.
• In case the documents are not proper, the DP officials will reject the form and intimate the client of the same, stating the reasons for doing so.
• If the form is in order; the DP officials will accept the same and affix the stamp "verified with original" on each and every proof after seeing the original proofs.
• After completion of all documentation, the DP officials will verify the pan from income tax website. And affix the stamp "PAN VERIFIED" with date and sign on the stamp.
• The DP officials will enter the client details as mentioned in the account opening form in the DPM (software provided by NSDL & CDSL to the Participant) screen provided for the purpose. In case of NSDL A/c opening the SR. Assist will capture all the details in the DPM and record the client's signature (on the form) as specimen for authorizations in the future.
• After entering client details in the system, a client account number will be generated by the DPM. The DP officials will enter this in the account opening form. After that the officers will verify the details in the DPM captured by the SR. Assist. and activate the account.
• The DP officials are not allowed to give the demat a/c no. to the clients until the a/c is activate, this is applicable for both NSDL & CDSL.
• When the demat a/c is activated the DP officials have to send the client master and the copy of agreement between DP and client at the client's address
DEMAT Process
• The registered holder of the securities makes the request.
• Securities must be recognised by Depository as eligible.
• Client submits DRF & physical certificates to DP. DP checks securities.
• Client defaces certificates and DP punches two holes on name of company.
• DP enters demat request in system for Depository.
• DP dispatches certificates along with DRF to R&T.
• Depository records the details and sends to R&T.
• R&T agent verifies the details and confirms to Depository.
• Depository credits the demat securities to BO a/c of client and intimates DP electronically.
• DP issues statement to client
Fees involved
There are four major charges usually levied on a demat account: account opening fee, annual maintenance fee, custodian fee and transaction fee. Charges for all fees vary from DP to DP.
Account-opening fee
Depending on the DP, there may or may not be an opening account fee. Private banks, such as HDFC Bank and AXIS Bank, do not have one. However, players such as Kotak Securities, Sushil Finance, ICICI Bank, Globe Capital, Karvy Consultants and Bajaj Capital Limited do impose an opening fee. But in Ventura Securities ltd, and some other companies doesn't have an any opening charge. State Bank of India does not charge any account opening charge while other maintenance and transaction charges apply. Most players levy this when re-opening a demat account. However, the Stock Holding Corporation offers a lifetime account opening fee, which allows the investor to hold on to his/her demat account for a long period. The fee is also refundable.
Annual maintenance fee
This is also known as folio maintenance charges, and is generally levied in advance. It is charged on annual or monthly basis.
Transaction fee
The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank pay the fee to the transaction value, which is subject to a minimum amount. The fee also differs based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities, while others charge for both. Some DPs also charge the investor even if the instruction to buy/sell fails or is rejected. In addition, service tax is also charged by the DPs
In addition to the other fees, the DP also charges a fee for converting the shares from the physical to the electronic form or vice versa. This fee varies for both demat (physical-to-electronic) and remat (electronic-to-physical) requests. For demat transactions, some DPs charge a flat fee per request in addition to the variable fee per certificate, while others charge only the variable fee.
For instance, Stock Holding Corporation has charged Rs 25 as the request fee and Rs 3 per certificate as the variable fee. However, SBI has charged only the variable fee, as Rs 3 per certificate. Remat requests also have charges akin to that of demat. However, variable charges for remat are generally higher than demat.
Some of the additional features (usually offered by banks) are as follows. Some DPs offer a frequent-trader account, where they charge frequent traders at lower rates than the standard charges. Demat account holders are generally required to pay the DP an advance fee for each account that will be adjusted against the various service charges. The account holder needs to raise the balance when it falls below a certain amount prescribed by the DP. However, if the holders also hold a savings account with the DP, they can provide a debit authorisation to the DP for paying this charge. Finally, once choosing a DP, it would be prudent to keep all accounts with that DP, so that tracking of capital gains liability is easier. This is because when calculating capital gains tax, the period of holding will be determined by the DP, and different DPs follow different methods. For instance, ICICI Bank uses the first in first out (FIFO) method to compute the period of holding. The proof of the cost of acquisition will be the contract note. The computation of capital gains is done account-wise.
Indian Banking System 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. An investor must have his/her PAN card in original at the time of opening of the account (mandate effective from April 1, 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 the 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 BOID (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.
Documents Required For Demat Account
To open a Demat account you have to provide documents which fulfill the requirements of KYC (Know Your Customer) norms. You have to sign a contract with Stock broker. Generally the documents are:
· PAN (Compulsory)
· Bank statement (last 3 months)
· Address Proof
· Income Tax Return
· Two colour photos
· Bank crossed Cheque (If required)
· KYC details
Analysis of Data :
Conclusion :
Bibliography : Internet
Title - Demat Account - A Report on the procedure of opening a Demat Account
