DP ID: 12030800
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There are two depositories in India, the National Securities Depository Limited and the Central Depository Services (India) Ltd.  The depositories are regulated by the Securities & Exchange Board of India Ltd. and are governed by the Depositories Act, 1996.  A client can open his account with either depository (through a depository participant) since both depositories are inter-connected to each other and are also connected to both the premier exchanges, NSE and BSE. 

In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.   

The depository system also allows distribution of dividends through the RBI’s ECS system, whereever the participating company has agreed to such service.  Other entitlements such as bonuses, split-ups are also directly effected by the depository into the investor’s account.

 

The following can be held in the depository (electronic) form:

 Shares (listed or unlisted)
Stocks
Bonds
Debentures
RBI Relief Bonds
Government Securities (through a Primary Dealer)
Units of Mutual Funds
Commercial Paper
Money Market instruments

·       

Both the depositories maintain only dematerialized securities.  The use of depository has been made mandatory in settlement of securities through the Exchanges Clearing Corporations.  Today almost all the volumes through the Exchanges are in demat mode. 

In the depository system, the ownership and transfer of securities takes place by means of electronic book entries which are facilitated by executing the ‘demat request slip’ (which is similar to a cheque leaf) or through direct instruction system on the internet.

 

·         elimination of bad deliveries

·         elimination of all risks associated with physical certificates

·         no stamp duty

·         immediate transfer and registration of securities

·         faster settlement cycle

·         faster disbursement of non-cash corporate benefits like rights, bonus, etc.

·         reduction in brokerage by many brokers for trading in dematerialized securities

·         reduction in handling of huge volumes of paper

·         periodic status reports

·         elimination of problems related to change of address of investor, transmission, etc.

·         elimination of problems related to selling securities on behalf of a minor

·         ease in portfolio monitoring

 

 

There are various checks and measures in the depository system to ensure safety     of the investor holdings. One is concerned as to dealing with individual depository participant.  These concerns include:

·      A DP can be operational only after registration by SEBI, which is based on the recommendation from the depository and their own independent evaluation. SEBI has prescribed criteria for becoming a DP in the regulations.

·         Depository Participants are allowed to effect any debit and credit to an account only on the basis of valid instruction from the client.

·         Every day, there is a system driven mandatory reconciliation between participant and the depository.

·         There are periodic inspections into the activities of both DP and R&T agent by the depository. This also includes records based on which the debit/credit are effected.

·         The data interchange between depository and its business partners is protected by protection measures of international standards such as encryption hardware lock. The protection measures adopted by the depositories are in lines prescribed in the SEBI Regulations.

·         All transactions are recorded at depository’s Central System and in the databases maintained by business partners.

·         All investors have a right to receive their statement of accounts periodically from the DP.

·         Every month the depository forwards statement of account to a random sample of investors as a counter check.

·         In the depository, the depository holds the investor accounts on trust. Therefore, if the DP goes bankrupt the creditors of the DP will have no access to the holdings in the name of the clients of the DP. These investors can transfer their holdings to an account held with another DP.

·        Certification in Depository Operations:  The Depository has introduced a Certification Program in Depository Operations, and it has been made compulsory for all DPs to appoint a person qualified in this certification in each of its branches. This way, NSDL wants to ensure that each branch of a DP that services investors has atleast one person who has thorough knowledge about depository system.

·         Investor grievance:  All grievances of the investors are to be resolved by the concerned business partner. If they fail to do so, the investor has the right to approach the depository.

·         Insurance Cover

·         Periodic Review: The hardware, software and communication systems are continuously reviewed in order to make them more secure and adequate for the size of business. These reviews are a part of an ongoing exercise wherein security considerations are given as much importance as operational efficiency.

 

 

 

 

Individuals, Companies, Trusts, Partnership Firms, NRIs, HUF, Banks, Institutions are allowed to open a depository account with any depository through a depository participant.  The investor would need to execute a standard form giving all his details, bank details, instruction details, nomination details and off-course photograph and signature.  Alongwith this form, the investor would also have sign an agreement with the depository participant which usually forms a standard part of the account opening process.  The details on the form have to be matched with a photocopy of the investor’s passport, driving license, etc. to certify the mentioned details.

 

If the investor is an NRI, then the client will have to provide overseas address, provide copy of RBI Approval, if any.  The RBI Approval is not mandatory for opening of a DP Account but is required to receive shares into the account when purchased through the secondary market.

 

Once the DP Account is opened the investor receives the following booklets:

-          Operational Procedure Booklet

-          Account Opening Information Sheet

-          Dematerialisation Booklet (Required when converting physical shares into electronic shares)

-          Instruction Booklet (which is used when selling/transferring shares).

 

Is a process by which an investor can get physical certificates converted into electronic balances maintained in his account with the Participant in the Depository System. The Certificates are forwarded to the Registrar by the Participant and the Registrar processes them, giving an equivalent credit in the investor's beneficiary account. This is done at the request of the investor.  An investor should first open an account with a participant and then request for dematerialization of his certificates by submitting the same to the Participant.

 

The credit of such certificates submitted for dematerialisation should be available within 45 days of the request.  However, some companies or their transfer agents do effect the credit in weeks’ time also.

 

The NRIs should keep a photocopy of the certificates submitted for dematerialisation.  The original allotment advice should be preserved carefully as the NRIs’ banker is likely to make use of the original allotment advice as proof for effecting financial credits to the NRE/NRO Account, after deducting appropriate tax.

 

One of the lesser-known but widely experienced problems with respect to dealing in share certificates is transmission of shares. The Companies Act distinguishes transmission of shares from transfer of shares. While transfer of shares relates to a voluntary act of the shareholder, transmission is brought about by operation of law. The word 'transmission' means devolution of title to shares otherwise than by transfer, for example, devolution by death, succession, inheritance, bankruptcy, marriage, etc. While transfer of shares is brought about by delivery of a proper instrument of transfer (viz, transfer deed) duly stamped and executed, transmission of shares is done by forwarding the necessary documents (such as a notarized copy of death certificate) to the company. On registration of the transmission of shares, the person entitled to transmission of shares becomes the shareholder of the company and is entitled to all rights and subject to all liabilities as such shareholder.

In case the deceased shareholder had holdings in different companies, then in order to effect transmission of shares for these shares, the relevant documents must be sent to each of the companies, alongwith the share certificates. This results in a heavy reliance on the postal system. Follow-up may have to be made with each of the companies in order get the transmission effected before the book closure, if the survivor(s) wishes to avail of the benefits accrued through these shares.
 
Transmission of Securities held singly: In case of death of the sole holder, the legal heir(s) or legal representative(s) of the deceased must request the DP to transmit the balances lying in the Client account of the deceased to the account of the legal heir(s) or legal representative(s). For this, the legal heir (s) or the legal representative(s) of such securities must submit an instruction called the transmission form to the DP alongwith the following documents:

a. A copy of the death certificate duly notarized
b. A copy of the Succession certificate duly notarized or an order of a court of competent jurisdiction where the deceased has not left a Will; or
c. A copy of the Probate or Letter of Administration duly notarized.

However, if the legal heir(s) or the legal representative(s) express inability to produce either of the documents mentioned under (b) and (c) above, and the market value of the securities held in each account of the deceased as on the date of application for transmission does not exceed Rs. one lakh, then the DP will process the transmission request on the basis of the following documents:

a. Transmission form;
b. Copy of the death certificate duly notarized;
c. Letter of Indemnity duly supported by a guarantee of an independent Surety acceptable to the DP, made on appropriate non judicial stamp paper;
d. An Affidavit made on appropriate non judicial stamp paper; and
e. No Objection Certificate(s) from all the legal heir(s) who do not object to such transmission.

The DP will ensure that the documents submitted by the legal heir(s) or the legal representative(s) are in order and will then effect a transfer of the balances to the Client account of the legal heir(s) or the legal representative(s).

After effecting the transmission, the DP will close the account of the deceased.

 

 

1.       Demat account opening:

     NRIs can open a demat account with any Depositary Participant of NSDL/CDSL in India. The NRI needs to mention the type (‘NRI’ as compared to ‘Resident’) and the sub-type (‘Repatriable or  ‘Non-Repatriable’) in the account opening form.  There is a new category of NRI Accounts recently introduced, as ‘DR’ Account, which is used for the purpose of 2 Way Fungibility in GDR/ADR.

 

2.       NRIs and RBI Permissions:

     No permission is required from RBI to open a demat account. Holding securities in demat only constitutes change in form and does not need any special permission. However, the RBI Permission is required by the DP to receive shares purchased from the secondary markets.

 

3.       Can securities purchased under repatriable and non-repatriable category be held in a single demat account?

An NRI must open separate demat accounts for holding ‘repatriable’ and ‘non-repatriable’ securities.

 

4.       How does NRI dematerialise securities purchased while he/she was resident?

As per FEMA rules, NRI must regularize his/her holdings to reflect change of status – in this case bring them to ‘Non-Resident’ status. For this, NRI must submit (if not already submitted to the issuing company earlier) a letter addressed to the issuing company along with the Demat Request Form stating change of status and giving details of foreign address.

 

5.      What are the procedures to be followed in respect of investment in securities in case person resident in India becomes NRI?

On becoming an NRI, a new depositary account with appropriate NRI status is to be opened and all the balances held in account with ‘Resident status should be transferred to the account with NRI status.

 

6.      What are the procedures to be to followed in respect of investment in securities in case NRI becomes person resident in India?

On becoming an Indian resident, a new depository account with appropriate status - 'Resident' in this case is to be opened and all the balances held in account with 'Non-Resident' status should be transferred to 'Resident' status.

 

7.       Subscribing to new issues: 

The issuing company is required to issue shares to NRIs on the basis of specific or general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission.  However, the NRI must carefully read the new issue application form before making required purchases.  In other words, the NRI can purchase the shares even if the NRI does not have the RBI Permission.

 

8.       Does NRI require any permission to subscribe to Rights issue of a company?

No.

 

9.       Does NRI require any permission to receive bonus shares?

No.

 

     Can a NRl nominate or be nominated in depository account? Whether such nominee can be person resident   in India?

Yes.

 

             Can an NRI and person resident in India have a joint demat account?

Yes. For the purpose of determining ownership of holding, the first holder is taken into account. Hence, even though other joint holders may be persons resident in India, the sale proceeds of such securities can be repatriated in case the first holder is permitted to repatriate funds.

 

 

     What are the permissions required for off-market transfer of securities?

From NRI to NRI

No permission

From person resident Outside India to person resident in India (Gift)

No permission

 

From person resident in India to person resident Outside India ( Gift)

Application to RBI by transferor

From person resident in India to person resident if outside India (Sale)

Approval from GoI and then RBI, if the acquisition is on repatriable basis. But acquisition is on non-repatriable basis, approval only from RBI

From person resident Outside India to person Resident in India (Sale)

RBI Permission through form Ts1

                 

       

GENERAL FAQ -  Depository Account Related

 

Can one get an account opening form from NSDL?

Ans: The account opening form can be obtained from the DP. This is similar to procuring an account opening form from a bank branch in order to open a bank account rather than from Reserve Bank of India. 

If an investor has certificates belonging to the same security, in the same order of holders, does he have to open as many accounts as the number of folios?

Ans: No. The investor can choose to have all securities deposited in a single account. 

Can an investor dematerialize all his depository eligible securities through the same account?

Ans: Yes. The investor can choose to have all his securities deposited in a single account provided the securities have the same holding pattern.  

Can a sole holder of the share certificates add one more name as a joint holder at the time of dematerializing his share certificates?

Ans: No. If the investor wants to transfer the ownership from his individual name to a joint name, he should first open an account as the sole holder (account A) and dematerialize the share certificates. He should then open another depository account (account B) in which he is the first holder and the other person is the second holder and make an off market transfer of the shares from the account A to account B. The investor will incur a charge on this transaction. Alternatively, the certificates can be transferred to the joint ownership and then sent for dematerialization. 

Can all DPs access all investor account details?

Ans: No. A DP cannot access the investor accounts of any other DP.  

Can an investor open a second account with another DP?

Ans: A client can choose to open more than one account with same DP. In addition to this, he has a choice of opening accounts with more than one DP. 

Is it necessary for an investor to open account with the same DP as his broker for settling trades done through him?

Ans: There is absolutely no compulsion for the client to open his account with the same DP as that of his broker. Even if he has an account with another DP, he can carry out normal business with his broker. There is no loss in operational efficiency. But it is possible that opening account with his broker's DP may work out to his advantage, as some DPs may offer special charge structure if the broker and his clients are dealing through him. 

Whether the client should keep a minimum balance of securities in his account?

Ans: No. NSDL has not prescribed any minimum balance of securities. The client can have a zero balance in his account. Any how the DP may fix some minimum limit.

How will the client know that the DP has updated his account after each transaction?

Ans: The DP will give the client a pass book or statement of account which will be despatched to the client periodically. From the statement the client will know his position.

What happens if there are any discrepancies in client's holdings?

Ans: The client should first contact his DP. If the discrepancy cannot be solved by the DP, then he should approach NSDL.

What happens if the client looses his statement of account?

Ans: The client informs the DP and obtains a duplicate statement of holding.

What security does the client have if the only proof of his holdings is merely a piece of paper indicating his account balance?

Ans: When the client opens an account with a DP, he has to sign an agreement with the DP in which the DP indemnifies the client for any misuse of his holdings. The depository will also ensure that the interest of the investors are protected.

Are there any additional security features which the DPs will offer to the client to protect his account?

Ans: Yes. Every transaction of the client will be authorized by the client. So, without his authorization nothing can be done. There is a facility for the client to lock his account so that the DP will not be able to carry out any transactions in his absence. NSDL will also send statement of holdings to some investors picked at random.

In case of discrepancies in corporate benefits, whom should the client contact?

Ans: The client should approach his DP who in turn will contact the registrar for clarifications regarding allotment of securities. In case of discrepancies in cash benefits the client has to contact the registrar.

Can a investor dematerialize any share certificates ?

Ans: An investor can only dematerialize those shares transferred & held in his name & if they belong to the list of securities admitted for dematerialization at the depository

Can an investor hold only part of the securities in demat form & the balance in physical form (share certificates) ?

Ans: Yes.

How will NSDL prevent securities bearing the same distinctive numbers as demat securities from floating in the market?

Ans: It is essentially a case of forged certificates and normal procedures that are being followed in the physical market will be used to weed them out. Secondly, the concerned stock exchanges where the securities are listed are informed of the details of securities dematerialized and rematerialised.

Is a transfer deed required for dematerializing certificates?

Ans: No. The certificates have to be accompanied by a demat request form (DRF) which can be obtained from his DP and there is no need for a transfer deed.

Can an investor dematerialize shares, which are pledged with a bank, which is a DP as well?

Ans: The investor can do this, with the permission of the bank.

Do dematerialized shares have distinctive/ certificate numbers?

Ans: No. 

Can odd lot shares be dematerialized?

Ans: Yes

Is dematerialization compulsory?

Ans: No. According to the Depositories Act, 1996, an investor has the option to hold shares either in physical or in dematerialized form.  However over 99% of the trading in the secondary markets are done in demat mode.

Is it compulsory to mention the ISIN number of the company while filling up the Demat Request form?

Ans: Yes. The ISIN name and number should be mentioned. This, to a certain extent, ensures that the security mentioned in the Demat Request Form is the same as the one the client intends to dematerialize. However, the client need not remember cryptic numbers and can take the help of his DP in filling these forms, who will gladly do it for him.