IPG2

Investment product group:
Next investment option available is equity shares. For which holding a demat account is
necessary.
Demat account:
In India, a demat account, the abbreviation for dematerialized account, is a type of banking
account which dematerializes paper-based physical stock shares. The dematerialized account is
used to avoid holding physical shares: the shares are bought and sold through a stock broker.
The 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).
What is the difference between a depository and a depository participant?
A depository is a place where the stocks of investors are held in electronic form. The depository
has agents who are called depository participants (DPs). A DP is typically a financial
organization like a bank, broker, financial institution, or custodian acting as an agent of the
depository to make its services available to the investors. Think of it like a bank. The head office
where all the technology rests and details of all accounts held is like the depository. The DPs are
the branches that cater to individuals. There are only two depositories in India -- the National
Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL).

Benefits:
- 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;
- 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.
Benefit to the company
The depository system helps in reducing the cost of new issues due to lower printing and
distribution costs. It increases the efficiency of the registrars and transfer agents and the
secretarial department of a company. It provides better facilities for communication and timely
service to shareholders and investors.
Benefit to the investor
The depository system reduces risks involved in holding physical certificates, e.g., loss, theft,
mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares.
It ensures faster communication to investors. It helps avoid bad delivery problems due to
signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on
transfer of shares. It provides more acceptability and liquidity of securities.
Benefits to brokers
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of
trading. It eliminates chances of forgery or bad delivery. It increases overall trading
and profitability. It increases confidence in their investors.
Bank Account Vs Demat Account
S.
No.
Basis Of
Differentiation
Bank Account Demat Account
1.
Form of
Holdings/Deposits
Funds Securities
2. Used for Safekeeping of money Safekeeping of shares
3. Facilitates
Transfer of money
(without actually
handling money)
Transfer of shares
(without actually
handling shares)
4. Where to open A bank of choice
A DP of choice (can be a
bank)
5.
Requirement of
PAN Number
Not Mandatory
Mandatory (effective
from April 01, 2006)
6.
Interest accrual on
holdings
Interest income is
subject to the applicable
rate of interest
No interest accruals on
securities held in demat
account
7.
Minimum balance
requirement
Balance maintenance is
specified for certain
bank accounts
No such requirement

Similarities:
S. No.
BASIS OF
SIMILARITY
PARTICULARS
1.
Security and
Convenience
Both are very safe and convenient means of
holding deposits/securities
2. Number of accounts
No legal barrier on the number of bank or
demat accounts that can be opened
3.
Transfer of deposits
(funds or securities)
Funds/securities are transferred only at the
instruction of the account holder
4.
Physical transfer of
money/securities
Physical transfer of money/securities is not
involved

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