India’s economy has expanded rapidly in recent years and is on track to reach $5 trillion. If you want to participate in the nation’s development, you must invest in Indian companies listed on the Indian stock market. A Demat account is a necessity for investing in the Indian stock market. However, having knowledge about the eligibility criteria for opening a demat account is crucial.
In this blog, we will provide an overview of the eligibility criteria and other requirements for opening a demat account.
Who is Eligible to Open a Demat Account?
A complete list of those eligible to open a Demat account is provided below:
2.The Identity Proof– To open a demat account, the depository participant (DP) requires identity proof such as a driver’s license, passport, voter ID card, Aadhar card, or other Indian government-authorized IDs.
3. Address Proof – Submit documents with your residential address for address verification, such as an Aadhaar card.
4. Bank Details – To transfer money from your bank account to your demat account, you must attach your bank account to your demat account. Provide a canceled check or a recent bank statement that includes your name, account number, and IFSC Code.
5. Income Proof – To trade in the derivatives market, you must provide proof of income. Your ITR, salary slip, and bank statement can be used as proof of income.
Both individuals and non-individuals can hold a Demat account according to the regulations specified by the Securities and Exchange Board of India. A list is mentioned below:
1. Individual – The individual category will include.
Resident Individuals.
Non-Resident Individuals
Minors
2. Non-Individuals – The non-individual category will include.
Corporates
Partnership Firms
Banks
Mutual Funds
Limited Liability Partnerships
Registered Trusts
Unregistered Trusts
Registered Societies
Unregistered Societies
Foreign Institutional Investors or Foreign Portfolio Investors
A Demat account has several advantages, some of which are listed below.-
Safety of Securities – Since a demat account enables us to hold securities digitally, there is no longer any chance of theft, physical damage, or fraud.
Efficient Transactions – A Demat account allows an individual to quickly buy and sell securities held in their account.
Convenience – A Demat account allows an investor to easily access their securities at any time, anywhere.
Monitoring of Investments – Holding assets in a demat account makes it simple to monitor the investment performance.
Less Paperwork – A demat account reduces the need for extensive paperwork.
Nomination – Investors can appoint a nominee in a demat account, which ensures that the assets can be easily transferred to the nominee in the case of the unfortunate death of the account holder.
Corporate Actions – Companies declare dividends, bonuses, rights issues, and other corporate actions, which are updated automatically in the Demat account.
Consolidation of Investment – A demat account helps consolidate all your investments, such as stocks, bonds, mutual funds, ETFs, etc., in one place.
Loan Against Securities – If you have securities, such as mutual funds, stocks, etc., in your demat account, you can easily pledge them and take out loans against them.
In conclusion, having a demat account offers several advantages, making it a valuable tool for Indian citizens, corporations, trusts, minors, etc., looking to invest in the Indian stock market. However, the documents required can vary for different investor categories. You can invest from the comfort of your home by opening a Demat account with Pocketful.
Frequently Asked Questions (FAQs)
What is the minimum amount required to open a demat account?
There is no minimum amount required to open a Demat account. However, some brokers charge account opening fees.
Who can open a trading and demat account?
Any resident or non-resident person, corporate entity, or minor can open a Demat account.
Can I open a demat account without providing proof of income?
If you simply want to invest in stocks, ETFs, etc., you can open a demat account without providing proof of income. However, you must provide proof of income if you want to trade in the derivatives market.
How many joint holders can be added to a demat account?
A joint demat account can be opened by a maximum of three account holders.
Can I open multiple demat accounts with the same broker?
Opening more than one Demat account with the same broker is prohibited.
If you are an investor who regularly participates in the stock market, you probably might have heard of scenarios of if someone had invested INR 10,000 twenty years back in a particular stock, then the investor would have been a multi-millionaire by now. But what if we tell you that recently, a stock turned an investment of INR 10,000 into more than INR 70 crores, not gradually but overnight?
In this blog, we will provide an overview of Elcid Investments Ltd. and explain the reasons behind the recent price increase.
Elcid Investments Overview
In 1981, Elcid Investments Ltd. was established and registered with the Reserve Bank of India as a non-banking financial company. The company’s main business is investing in a range of securities, including mutual funds, shares, and debentures. The business is listed on the Bombay Stock Exchange. It has two subsidiaries, Suptaswar Investment & Trading Company Ltd. and Murahar Investments & Trading Company Ltd., both of which are registered with the RBI as non-banking financial corporations. The company’s main office is located in Mumbai.
Due to the firm’s significant dividends and the restricted supply of shares on the market, the stock price experienced a significant upward trend in early 2020, making the company a hidden gem for investors. The company’s promoters have made attempts to delist or repurchase shares at a base price of INR 1,61,203, but they were unsuccessful since they did not have public shareholder’s approval.
Latest News About Elcid Investments
When Elcid Investments’ share price surpassed that of MRF Limited, it became the most expensive stock on the Indian equity market and made headlines. The share’s price has jumped over 75,000 times overnight, which made the stock a topic of discussion among investors. The company was last traded on 21 June 2024 and closed at INR 3.55. The next time it was traded was on 29 October 2024, and the stock price closed at INR 2,36,250.
Elcid– Penny Stock to Most Expensive Stock
The story began when SEBI published a circular in June mentioning the use of a price mechanism called the Special Call Auction of Investment Holding Companies and Investment Companies to determine the companies’ fair prices. This circular aimed to lessen the price gap between holding companies’ book values and current market prices. There won’t be price bands in this auction.
The company consistently pays large dividends to its owners, which attracts investors. Since the company paid out a dividend of INR 25 in August 2024 despite its share price being only INR 3, no investor was prepared to sell their holdings.
Back in 2013, when the share’s current market price was below 2.73 INR, the company’s promoters chose to delist the security and offered an alluring price of INR 11,455. However, according to SEBI laws, 90% of the public shareholders must approve of the offer to delist, and in this instance, the shareholders rejected it. The company recently made a delisting offer of INR 1,61,203 per share, but the investors also rejected this offer.
The company owns approximately 2.83% stake in Asian Paints, which is valued at 8,500 crores. The stock is still trading at a 45% discount to its intrinsic value of INR 4.25 lakh per share based on its position in Asian Paints.
Did You Know – Other than Elcid Investments Limited, only 30 stocks in India have share prices above INR 10,000. These businesses include MRF, Page Industries, Honeywell Automation India, and Shree Cement.
Elcid Investments has experienced exponential growth in recent years because it owns a 2.83% stake in Asian Paints. However, because of the market’s limited liquidity, the share prices do not reflect the company’s fair value. As a result, even after the call auction, the company is still trading below its fair value. Investors may find it challenging to buy this stock because of its low liquidity. However, investors must consult their investment advisor before making any investment.
Frequently Asked Questions (FAQs)
Where is the headquarters of Elcid Investment Limited?
The headquarters of Elcid Investment Limited is situated in Mumbai.
What caused the increase in the share price of Elcid Investments?
The BSE’s unique call auction mechanism, which enables firms to find a reasonable price without a price band, caused the share price of Elcid Investment Ltd. to soar on 29 October 2024.
Why does Elcid Investment Ltd. share have low liquidity?
The company’s share price has low liquidity as it declares high dividends and trades below its fair value, which is why investors are not willing to sell their holdings.
Is Elcid Investment the costliest stock in India?
Elcid Investment Ltd.’s share price is valued at INR 2,36,250, making it the costliest stock in India as of 29 October 2024.
Who are the major investors in Elcid Investment Ltd.?
The promoters of Asian Paints hold around 75% stakes in Elcid Investments Limited, and other shareholders, such as Hydra Trading Pvt. Ltd., hold around 9.04% stake.
At times, investors get concerned about what would happen to the securities in their demat account if they passed away and is there a procedure they can follow to transfer the stocks to a family member? The answer to that query is “Nominee.” Investors can designate a nominee in their demat account so that in the event of an investor’s untimely death, the nominee will have easy access to the securities held in the investor’s demat account.
In this blog, we will explain how to appoint a nominee for your demat account.
Who is the Nominee?
In a Demat account, the nominee is a person designated by the account holder to inherit the securities in the account in the event of the account holder’s unfortunate death. The nominee facilitates the transfer of the asset without probate or formal succession. Adding a nominee to the demat account is advised because it makes transferring the securities held in the demat account easier. If an account holder passes away, the nominee serves as a custodian with the power to administer the securities kept in the demat account.
What is Nomination in Demat Account?
The process of appointing a nominee by the Demat account holder is known as nomination. A nominee is a person who would inherit the securities, such as shares, bonds, etc., in the event of the account holder’s death. A nominee must be appointed whenever a demat account is opened. It is necessary for the asset transfer to go smoothly. In the event of the account holder’s untimely death, having a nominee in a demat account prevents the situation of unclaimed assets.
The key points signifying the importance of having a nominee in a Demat account are mentioned below-
Easier Asset Transfer – In the event of the account holder’s untimely death, having a nominee in a demat account enables quick and easier transfer of the assets.
Protects against uncertainty – Adding a nominee to the demat account reduces the possibility of a dispute involving the transfer of the account holder’s securities.
No Additional Cost – No extra fees are associated with adding a nominee to the demat account.
No Freezing of Account – The SEBI has released a circular to freeze the Demat accounts for debits if the nominee is not updated in the Demat account. Appointing a nominee prevents such situations.
Distribution of Asset – You can designate up to three individuals as nominees, making it simple to divide the asset among family members.
Saves Time – Designating a nominee in the demat account relieves the legal heirs of the burden of going through a legal procedure.
Peace of Mind – You can feel secure knowing your assets will be passed on to the family member you specified in the nomination.
The steps to add a nominee to a demat account online are as follows-
1.Visiting the Website – Visit the NSDL or CDSL website and select the ‘Nominate Online’ option.
2. Enter the Details – You will be redirected to a new webpage where you will be asked to enter various details, such as your Depository Participant ID, client ID, and PAN card.
3.Authentication – An OTP will be sent to your registered mail ID and mobile number, and you must enter that OTP to complete the authentication process.
4.Nomination – There will be two options available. If you wish to add a nominee, select the ‘I wish to nominate’ option and provide the nominee’s details on the next page. The other option is “Opt out of the Nomination” if you don’t wish to appoint a nominee for your demat account.
5. Authenticating the Nominee Details – After that, you must authenticate the nominee’s details by clicking on the checkbox.
6.Esign– The last step is to sign the documents, which can be completed through e-sign service providers.
7.Service Provider – You will be redirected to the Protean eGov page, where you must perform an Aadhaar Esign.
8.Submission – The nomination process is completed once you enter the OTP received on your Aadhaar-registered mobile number.
The nominee can be easily added to your demat account through offline mode, the steps of which are as follows-
1. Get the Form – The first step would be getting the nomination registration form. Get the Form No. SH-13 Nomination form from the branch of your depository participant or SEBI website.
2.Details – Fill out the nomination form with details such as the nominee’s name, address, relationship with you, and the percentage of assets that would be transferred to the nominee in the event of the investor’s death. Make sure that the details provided are accurate.
3.Signing the Form – The account holder must sign the nomination form, and if there are two joint holders, then all the account holders must sign it.
4. Submission of Form – The form can be submitted to the nearest branch of your depository participant.
5.Receipt of Acknowledgment – The depository participant issues an acknowledgment slip that must be kept for future reference.
6.Confirmation – Once your form is accepted and processed, the depository participant will update the nominee details in your demat account.
The demat accounts have flexible eligibility criteria for nominees; below mentioned are the key eligibility criteria –
Individual – Regardless of age, a person can be designated as a nominee in a demat account. However, the guardian must be appointed if the nominee is a minor.
Minor – A minor can also be designated as a nominee in a demat account. However, in this scenario, the minor’s guardian will manage the account in the event of the account holder’s death until the minor turns 18.
NRI – It is also possible to designate a non-resident Indian as a nominee in a demat account.
Legal Entities – Legal entities, such as companies, trusts, or partnership firms, are not allowed to be appointed as nominees.
Joint Account Holders – If there are two or more joint holders, the nominee can only exercise their entitlement if both joint holders pass away. The demat account will continue to be operated if any of the joint holders are still living.
The nominee in the Demat account can be updated through both online and offline methods-
Online Mode
Visit the Website – Go to the NSDL website and then navigate to the main page.
Selecting the Nomination Option – Choose the online nomination option on the main page.
Enter the Details – You will then be taken to a new page where you will be required to provide several details, including your PAN card and Depository Participant ID.
Authentication – You will receive an OTP on your registered email address and mobile number. Input it to finish the authentication procedure.
Edit or Update Nominee – If you want to change or amend the nominee in the Demat account, enter the new nominee’s information on the following page.
Authenticating the Nominee Details – You can update the nominee’s details by entering the OTP sent to your registered mobile number and email ID.
Submission – Enter the OTP received on your Aadhar registered mobile number to submit the form.
Offline Mode
Get the Form – Obtain the nomination form. Form SH-14 is the “Cancellation or Variation of Nomination” form, available on the NSDL or CDSL websites. The form is also available at the nearest branch of your Depository Participants.
Account Details – Complete the form with account details such as the demat account number, the account holder’s name, and other information.
Existing Nominee Details – Input details regarding the nominee’s name, birthdate, relationship to the account holder, contact details, and other information.
In Case of Minor – If the nominee is a minor, the guardian’s name, relationship, and contact information must also be provided.
New Nominee Details – Write the details of the new nominee in the form.
Signing the Form – The account holder must sign the nomination form, and if there are two joint holders, all the account holders must sign the form.
Submission of Form – Submit the form at the nearest branch of your depository participant.
Receipt of Acknowledgment – The acknowledgment given by the depository participant must be kept for future reference to track the process of change in nomination.
Confirmation – Once your form is accepted and processed by the depository participant, you will receive a confirmation mail from their end.
The extended deadline announced by the Securities and Exchange Board of India is 30 June 2024. If you do not nominate a person in your demat account or opt out of the nomination, then your demat account will be frozen for debits by the depositary participant.
In conclusion, designating a nominee for your demat account is crucial to ensuring a smooth transfer of securities in the event of the account holder’s untimely death. You can designate up to three nominees if you want to transfer the securities to more than one person. These nominees don’t have to be your blood relatives; you can also designate your friends as nominees.
Frequently Asked Questions (FAQs)
How many nominees can be added to a demat account?
Investors can designate up to three people in a demat account and specify the asset percentage. For instance, you can divide the assets among the three nominees, A, B, and C, as follows: 25% should go to A, 25% to B, and 50% should go to C.
What if no nominee is updated in the demat account?
The process of transferring the securities following the account holder’s death may become more difficult and take longer than usual if no nominee is added to the demat account. A legal procedure may be required to determine the account holder’s legal successor.
Is appointing a nominee mandatory for a demat account holder?
According to the most recent guideline published by the Securities and Exchange Board of India, it is mandatory to add a nominee by 30 June 2024, or else your demat account will be frozen.
Is it necessary that a nominee must be a family member?
A nominee is not required to be a member of your family or a blood relative. You can choose anyone as a nominee, even a friend.
How can a nominee claim the securities in the Demat account of the account holder?
A nominee can claim the securities in the account holder’s demat account by providing the depository participants with the account holder’s death certificate and the necessary paperwork.
A Demat account holds securities such as shares, bonds, and mutual funds in electronic form, providing a safe and convenient way to manage your investments. Knowing how to check your Demat account status or balanceis essential for monitoring your portfolio and making informed financial decisions.
Whether you are an active trader or a long-term investor, regularly reviewing your Demat account helps you stay updated on your holdings, identify market trends, and plan your future investments. In this blog, we will walk you through thesimplesteps to check your Demat account status or balance easily.
What is a Demat Account Balance?
A Demat account balance refers to the total value of securities held in your Demat account, including the shares, bonds, mutual funds, and other financial instruments. Thebalancereflects thequantity and valueof theseholdings in electronic form, providing a consolidated view of your investments. Knowing how to check Demat account balanceis crucial for monitoring your portfolio, whether you are an active trader or a long-term investor.
Most brokers nowadays provide a number of charts and other infographics to help investors and traders better assess the performance of their investments. Investors can get useful insights, such as the growth in investment value, sector weightage of the portfolio, dividend and other corporate actions, etc., by regularly monitoring their demat account balance.
How to Check Your Demat Account Balance?
Checking your Demat account balanceis a straightforward process and can be accomplished in two ways:
Depository Participant’s platforms: You can check your demat account balanceonlinethrough your DP’s official websiteor mobileapplication. Simply log in with your credentials and navigate to the “Holdings” or “Portfolio” section to view your portfolio value. Those wondering how to check their Demat account balance offline can also request a physical demat account statement from their DP, which will have all the details of their holdings.
CDSL and NSDL: Investors can log in using their credentials, download the Consolidated Account Statement (CAS), and view all their investments. It can be accomplished in three easy steps:
Enter PAN number and 16-digit demat account number.
Enter your Date of Birth for verification.
Enter the OTP you receive on your registered mobile number and download your CAS document for a specific time period.
Checking the status of your account is equally important. Knowing how to check Demat account status ensures that your account is active and functional, which is crucial for making the seamless transactions. A Demat account becomes dormant if the investor doesn’t execute any buy or sell transactions for the last 12 months. You can verify your account status by logging into your DP’s portal. Also, the DP communicates with the client about the dormant demat account and shares the process for reactivating the demat account. To sum up, understanding how to check the Demat account balance or account status is essential for keeping track of your investments and making informed investment decisions.
What is a Demat Account Statement?
A Demat Account statement is a document that lists all the securities, such as shares, mutual funds, etc., held in a Demat account. It provides information about the asset type, quantity, current value, and other details. In short, it is a brief snapshot of your demat account holdings.
It is essential for investors to track their Demat account holdings to assess the performance of securities held. This helps investors make better portfolio management decisions and plan their future investments better. Moreover, investors can check suspicious transactions by regularly reviewing their Demat account statements.
Things to look for while Reading the Demat Account Statement
Reading a Demat account statement is an essential task for keeping track of your investments. It offers a detailed overview of your holdings and transactions and helps you to assess theperformanceof your portfolio. Herearekey things to look for while reading your Demat account statement:
Personal Details: Ensurethat your personal information, such as your name, account number and depository participant (DP) details arecorrect. Any errors should be reported immediately to avoid issues.
Holdings Summary: This section displays the securities you currently hold in your account. Verify thedetails and include thequantity and valueof shares, bonds, and mutual funds. Check if the holdings match your recent purchases or sales.
Transaction Summary: The transaction history section provides a record of all the transactions carried out in your Demat account during a particular time period. Ensureall transactions areaccurateand no unauthorized activity has occurred.
Freeand Pledged Shares: Someshares in your account may be pledged, which means they have been kept as collateral. Investors can only sell the number of shares that appear in the ‘Free Balance’ column, and the pledged shares must be unpledged if the investor wants to sell them.
Portfolio Performance: The CAS document shows how your investment portfolio has performed over the past 12 months, which is useful for investors who want to plan their future investments more wisely.
What is the Need to Check your Demat Account Status?
It is important to check your Demat Account status for the following reasons:
EnsureAccount Activity: Monitoring your account status helps confirm that your Demat account is active and in good standing. Inactive or dormant accounts can cause issues when executing transactions through the linked trading account.
Track Investment Performance: By reviewing your account status, you can assess the performance of your securities, track your portfolio growth, and make timely adjustments based on market trends.
Identify Unauthorized Transactions: Regularly checking your Demat account status allows you to spot any unauthorized transactions or suspicious activities. This ensures the safety of your investments and prevents fraud.
UpdateKYC and Compliance: Staying updated with your account status helps you ensurethat your Know Your Customer (KYC) details areaccurate and up to date. This is important to avoid any regulatory or compliance issues that may arise due to outdated information.
By keeping a close eye on your Demat account status or balance, you can safeguard your investments, respond to market changes, and make informed financial decisions. Investors can check their Demat Account balance by logging in to their DP’s platforms and reviewing holdings or downloading a Consolidated Account Statement (CAS). This proactive approach ensures a well-managed investment portfolio and contributes to long-term financial success.
Frequently Asked Questions (FAQs)
Why is it important to check my Demat account status regularly?
Regularly checking your Demat account status ensures your account is active, and helps track investment performance, identify unauthorized transactions, and keeps your KYC information up to datefor compliancepurposes.
How often should I check my Demat account balance?
It is recommended that you check your Demat account balance regularly, especially after making the transactions or during the market fluctuations, to stay updated on your holdings and investment performance.
What should I do if I notice unauthorized transactions in my Demat account?
If you notice any unauthorized transactions, then contact your depository participant (DP) immediately and report the issue. They will guide you on how to freeze the account or take corrective measures to secure your investments.
Can I check my Demat account balance online?
Most depository participants provide onlineaccess through websites or mobileapps where you can check your Demat account balanceand track your portfolio performance.
What happens if my Demat account becomes dormant?
If your Demat account becomes dormant, you may face difficulties in executing the trades through the linked trading account. To reactivate the account, you need to contact your DP and fulfill the necessary requirements.
If you are familiar with equity investments, then you must also be aware of the benefits of starting the investment journey early. If you want to safeguard your child’s financial future but are unsure about the specifics, then this blog is for you.
In this blog, we will walk you through the process of opening a Minor Demat account and its features, benefits, and limitations.
What is a Minor Demat Account?
Under the Indian Contracts Act of 1872, minors are generally prohibited from engaging in financial contracts in India. However, according to the Indian Companies Act of 2013, any person of any age may own publicly listed shares. With certain limitations, any minor can own a Demat account under this legislation.
A minor demat account is opened in the name of a minor. However, these accounts require the parents or other legal guardians to take care of the activities, such as transactions and other activities associated with the account, until the minor attains adulthood.
Features of Minor Demat Account
The key features of a Demat account in the name of a minor are as follows-
Operations – The account is operated by the minor’s parents or legal guardians.
Documents – The documents of both minors and their guardians are required to open a minor demat account.
Restrictions– A minor account can only be used to sell securities and activities such as intraday trading, derivative trading, etc are prohibited.
Taxation – Income generated from investments in a minor demat account is taxed based on the guardian’s tax bracket.
Conversion – On attaining the age of 18, the minor’s demat account will be converted into the regular Demat Account.
Eligibility and Documentation for Minor Demat Account
Eligibility Criteria
The eligibility criteria to open a minor demat account are as follows-
1. Age – The person whose account is to be opened must be a minor or below 18 years of age.
2.Guardian – The guardian is mandatory while opening the demat account in the name of a minor, as the minor cannot operate the account.
3.KYC – Both the minor and the guardian must fulfill the KYC requirement.
4.Bank Details – The minor must have a bank account in their name, and only that account must be linked to the minor demat account.
5. Speculative Trading – SEBI prohibits speculative trading activities in a minor’s demat account.
Documents Required
To open a minor’s demat account, the guardian and the minor must provide several documents. The following is the list of the same:
PAN Card – This is a mandatory document, and both the minor and guardian must submit it to open a minor demat account.
Age Proof – Brokers accept various age verification documents, including birth certificates, passports, school leaving certificates, and mark sheets with the date of birth.
Bank Details – Minor’s bank account details must be provided to link it with the Minor Demat account.
Passport Size Photo – A passport-size photograph of the minor is also required.
Address Proof – An address proof, such as an Aadhaar Card, is also required.
The minimum age requirement for a regular demat account is eighteen; however, there is no minimum age requirement for a minor demat account. However, there is a process that must be followed:
1.Identify the Broker – The first step is to identify the broker registered with NSDL or CDSL with whom you want to open your demat account.
2. Documents Required for a Minor Demat Account – Gather the necessary documents such as the PAN card of both the minor and guardian, Aadhar cards, the minor’s birth certificate, and bank details.
3.Fill out the Basic Details: You can register to open a Minor Demat account online and offline. If you use the offline approach, you can fill out the form and submit it to the broker; if you use the online option, you must visit the broker’s website and fill out the form.
3. KYC – Completing the minor and guardian’s KYC is a crucial step while opening the account.
4.Documents – Attach the scanned copies of necessary documents along with the form.
5. Verification – Once the broker verifies all the documents, they will open a Minor Demat account and provide you with credentials.
Rules of Minor Demat Account
If an individual wants to open a Minor Demat account, then he must follow specific rules and regulations, such as:
1. Guardian Requirement – A minor’s demat account cannot be opened without a guardian. However, a guardian can be a biological parent or a legal guardian appointed by the court.
2. Restrictions – Minors cannot buy or sell securities on their own until they turn 18 years old.
3. Nomination – A nominee can be registered for a minor demat account by the guardian when the minor demat account is opened.
4. Account Closure – A guardian can close the minor’s demat account and can either sell or transfer the securities.
5.Multiple Demat Account – A minor can only have one demat account under the guardianship of a specific guardian. However, if their parents are separated, both parents can open a separate account for the minor.
Benefits of Minor Demat Account
There are various benefits of having a demat account in the name of a minor, a few of which are mentioned below-
Financial Planning – You can begin investing early for your kid’s future. With a Minor Demat account, parents can save and invest funds for their child’s future goals more effectively.
Early Investment – The earlier you start your investment journey, the higher the benefit of compounding will be.
Tax Benefits – Investing in the name of a minor will provide tax benefits as the gains from such investment are taxed at the guardian’s tax rate until the child reaches the age of 18 years.
Ownership – Having a demat account provides minors with a sense of ownership and responsibility at a younger age.
Gifts – Minor can receive shares and other securities from their relatives directly in their Demat accounts.
What Are the Limitations Applicable to A Minor Demat Account?
There are various limitations applicable to a minor demat account; a few of such limitations are as follows-
No Derivative Trading – Due to the significant risk associated with derivative instruments, SEBI has set restrictions on trading in the derivatives, including futures and options, in the minor’s demat account.
No Intraday and Margin Trades – Engaging in intraday trading and margin trading is prohibited in a Minor Demat account.
No Independent Execution – The minor cannot execute any trade or transfer any security without the guardian’s authorization.
No Loans – The holdings in the minor’s demat account are not eligible for loans against the securities.
Taxation – The income realized on the investments held in a minor’s demat account, such as dividends, interest, and capital gains, are added to the guardian’s income and are taxed based on the guardian’s tax bracket. Minors cannot be independently taxed until they turn 18.
To sum up, opening a minor demat account will enable you to safeguard your child’s future and effortlessly accomplish financial objectives like marriage and education of your child. Nonetheless, maintaining a minor demat account is subject to several limitations imposed by the SEBI. It is recommended that you open a Minor Demat account in your child’s name to introduce them to the concepts of investments at a young age.
Frequently Asked Questions (FAQs)
Can a minor invest in stocks through a Demat account?
A minor cannot invest in shares directly; however, the guardian can buy shares on the minor’s behalf and transfer them to the minor’s demat account.
Are minor demat accounts free of Annual Maintenance Charge (AMC)?
Most brokers don’t charge annual maintenance charges for a minor demat account.
What are the tax implications of income on investments held in a minor’s demat account?
The tax is calculated based on the guardian’s tax bracket until the minor attains the age of 18.
Can a minor demat account be converted into a regular demat account?
After attaining the age of 18, a minor’s demat account is converted into a regular demat account. However, KYC documents need to be submitted again
Can we do intraday trading in a minor demat account?
As per the SEBI, intraday trading and F&O trades are not allowed in the minor’s demat account as such investments carry higher risk.
When bonus shares are credited to a demat account, it signifies a company’s decision to reward its shareholders by issuing the additional shares at no extra cost. This corporate action is usually announced along with the company’s financial results and reflects its commitment to return value to investors.
Understanding the timeline and procedure for bonus share allocation is crucial for investors as it impacts their overall portfolio and investment strategy. This blog looks into the eligibility criteria, benefits and disadvantages of bonus shares.
What are Bonus Shares?
Bonus shares are additional shares given to existing shareholders at no extra cost, typically in proportion to their current holdings. Companies issue bonus shares as a way to distribute retained earnings and rewarding the shareholders. This corporate action is often seen as a positive signal about a company’s financial health and growth prospects.
For example, if the company announces a bonus share in the ratio of 4:1, which means that for every share you own in the company, you will get 4 bonus shares. If you own 100 shares of a company, then you will get 400 bonus shares.
The process involves several steps, starting with the company’s announcement of the bonus issue and record date. Let’s look at the eligibility criteria for getting bonus shares.
Eligibility of Bonus Shares?
Eligibility for bonus shares is primarily determined by the record date announced by the company. All the investors that hold the shares of the company on the record date are eligible to get bonus shares.
For example, suppose a company announces a bonus share issue with the record date as 31 October 2024, i.e., Thursday. As the settlement cycle follows a “T+1” schedule in India, the investors must purchase the shares on or before 30 October 2024 to appear in the list of shareholders on the record date to get the benefit of bonus shares.
When Bonus Shares are Credited to the Demat account?
So, the big question is, when will the bonus shares be credited to the demat account? Earlier, it took around 15 days for the bonus shares to get credited to the demat account of the investors, but recently, SEBI issued a circular enabling “T+2” trading of bonus shares, where T is the record date and “T+1” day is the date of allotment. Let us understand this with the help of an example.
Recently, Reliance announced the decision to issue bonus shares in the ratio of 1:1 on 5 September 2024, which means the investors will get 1 bonus share for each share they own. The record date was announced as 28 October 2024, which makes the date of allotment as 29 October. The shares will be credited to the Demat account of investors on 29 October, and the bonus shares will be available to trade on 30 October 2024.
Understanding these details is essential for investors as it helps in managing the expectations and planning their investment strategies effectively. Overall, bonus shares can enhance the value of shareholder’s portfolio and make them an important aspect of equity investment.
Benefits of Bonus Shares
Bonus shares offer several benefits to both companies and shareholders. These advantages are mentioned below:
One of the primary advantages is the increased number of shares. When a company issues bonus shares, it increases the number of shares an investor owns without requiring additional investment. If the company performs well in the future, then due to an increased number of shares, the investors can get better returns.
Bonus shares improve liquidity in the market. With more shares available, trading becomes easier. Increased liquidity positively impacts the stock price over time.
From the company’s perspective, issuing bonus shares can strengthen investors’ confidence and signal financial health. It demonstrates that the company is performing well financially and can distribute profits, which can attract new investors and boost overall market perception about the company.
Investors don’t have to pay any taxes on the bonus shares immediately.
The share price of the company decreases as it adjusts according to the bonus issue ratio. The lower price makes the share affordable for investors.
Disadvantages of Bonus Shares
The disadvantages of Bonus shares are:
Bonus shares increase the total number of available shares to trade, which can reduce ratios such as Book Value per Share (BVPS), Earnings per Share (EPS), etc.
Investors may begin to expect bonus shares each time the company doesn’t announce a dividend. Failure to meet investor expectations can negatively impact the company’s share price.
Issuance of bonus shares doesn’t provide any immediate monetary gain.
In conclusion, while bonus shares can enhance shareholder value and signal a company’s financial strength, they also carry some drawbacks. Therefore, it’s crucial for investors to weigh both the advantages and disadvantages of bonus shares. A thorough understanding of the timeline of bonus shares can help shareholders make informed decisions and manage their portfolios more effectively.
Frequently Asked Questions (FAQs)
What are bonus shares?
Bonus shares are additional shares given to existing shareholders at no extra cost, in proportion to their current holdings.
When will bonus shares be credited to my demat account?
Bonus shares are credited to the Demat accounts on “T+1” day, where T is the record date.
How do I know if I’m eligible for bonus shares?
To be eligible, you must hold shares in the company on the record date. Companies announce their bonus shares through public notices, which include details about the record date.
What should I do if I don’t see my bonus shares in my demat account?
If you haven’t received your bonus shares within the expected timeframe then contact your broker or the company’s investor relations department for updates.
Can I sell my bonus shares immediately after they are credited?
Yes, once the bonus shares are credited to your demat account, you can sell them like any other share.
In today’s digital world, almost all personal and financial information of a person is in some form stored digitally. This makes them vulnerable to cyber threats, as evident from the frequent instances of cyber frauds, which makes safeguarding your financial assets more important than ever. Two-factor authentication (2FA) is a vital security measure that adds an extra layer of protection to your demat account and ensures that only you can access your investments. This process requires not only your password but also a second form of verification, such as a one-time code sent to your mobile device or biometric verification.
In this blog, we will walk you through the steps to enable two-factor authentication in your demat account and help you safeguard your investments from unauthorized access and potential fraud.
What is Two-Factor Authentication (2FA)?
Two-factor authentication (2FA) is a security process that enhances the protection of your online accounts, including your demat account, by requiring two separate forms of verification before granting access. This extra layer of security significantly reduces the risk of unauthorized access and fraud, making it a vital feature for anyone managing the financial assets.
When you enable two-factor authentication for your demat account, you not only rely on your password but also on a secondary verification method. This could be a one time code sent to your mobile device or a fingerprint scan. By implementing the 2-step verification in your demat account, you ensure that even if someone obtains your password, they still cannot access your account without the second form of verification.
The process of enabling two-factor authentication in your demat account is straightforward. Most brokerage platforms provide an option in the account settings where you can activate this feature.
Why Enable 2FA for Your Demat Account?
Enabling the two-factor authentication (2FA) for your demat account is crucial in today’s digital world as instances of cyber fraud are increasing. Two-factor authentication for demat accounts serves as a robust security measure and significantly reduces the risk of unauthorized access and potential financial loss.
One of the primary reasons to implement two step verification in your demat account is to protect your sensitive financial information. Moreover, two-factor authentication in your demat account assures the investor that his financial assets are secure. Knowing that your investments are safe increases investor confidence in the financial markets. It discourages cyber criminals and reinforces your belief in secure storage of your financial assets.
Implementing the demat account two-factor authenticationis a straightforward process. Most financial institutions provide user friendly options to enable this feature in your account settings. Once activated, you will be required to fulfill two separate authentication requirements each time you log in, thereby ensuring that the financial securities in your account remain secure.
How do you Enable Two Factor Authentication in a Demat account?
Enabling the two-factor authentication (2FA) in your demat account is a straightforward process that enhances your account’s security. Here’s how to do it:
Log In to Your Account: Start by logging into your demat account using your credentials.
Navigate to Security Settings: Once you log in, navigate to the ‘Settings’ or ‘Account Settings’ option, which is often found in the menu or profile section.
Find Two-Factor Authentication: Look for the ‘Security’ or ‘Two-Factor Authentication’ option within the settings. This may also be labeled as ‘2 Step Verification.’
Enable 2FA: Select the option to enable 2-FA. You may be prompted to enter your password again for verification.
Choose Your Verification Method: Select a mode of receiving your verification code, such as SMS, email or an authentication app. Most brokers nowadays offer fingerprint scans as a form of biometric authentication measure, which makes hacking your Demat account even more difficult.
Complete the Process: Follow the instructions and enter the verification code sent to you or register your fingerprint scan.
Save Changes: Ensure you save your changes before logging out.
How Important is the Security of your Demat account?
The security of your demat account is paramount in safeguarding your financial assets and investments. As online trading continues to gain popularity, the importance of robust security measures cannot be overstated. A compromised demat account can lead to unauthorized transactions, financial loss, and identity theft, making it essential to prioritize your account’s security.
Implementing the two-factor authentication for your demat account is one of the most effective ways to enhance security. This added layer of protection ensures that even if your password is compromised, still unauthorized users cannot access your account without a second form of verification. With 2-step verification in your demat account, you gain peace of mind knowing that your investments are shielded from potential threats.
Two-factor authentication in your demat account significantly mitigates the risks associated with online trading. Cybercriminals are constantly trying to improve their tactics to gain access to the financial assets of others, which makes relying solely on a password no longer a sufficient protection measure to protect your financial information. By utilizing the 2-factor authentication for your demat account, you make it considerably more challenging for hackers to gain access, as they would need both your password and the verification code sent to your mobile device.
Moreover, the demat account 2-factor authentication is a proactive measure to secure your financial future. The ease of enabling this feature through your brokerage’s account settings means that enhancing your security is just a few clicks away.
Protection Against Phishing Attacks: By establishing a second form of verification, the 2-FA helps safeguard the financial assets of the investor against phishing attacks. Phishing attacks are attempts made by hackers to steal your login credentials. Due to two-factor authentication, even if hackers obtain your password, they cannot access your account.
Peace of Mind: Knowing that their demat account is protected by two layers of security helps account holders gain peаce of mind.
Multiple Options: Many services offer various verification methods, including SMS codes, authentication apps, and biometrics that allow the users to choose what works best for them.
Adaptability: 2FA can be easily implemented across various platforms, making it a versatile security measure suitable for various applications.
In conclusion, two-factor authentication (2FA) is an essential security measure that significantly enhances the protection of your online accounts. By requiring a second form of verification, 2FA not only mitigates the risks associated with compromised passwords but also safeguards against phishing attacks. The peace of mind that comes from knowing your accounts are protected by multiple layers of security is invaluable. With various user friendly verification methods available, implementing the 2FA is both practical and effective. Embracing this security feature is a proactive step towards ensuring the safety of your sensitive information and protecting your financial assets in today’s digital landscape.
Frequently Asked Questions (FAQs)
What is two-factor authentication (2FA) for a demat account?
Two-factor authentication (2FA) for a Demat account is a security measure that requires the users to provide two forms of identification before gaining access to the Demat account. This typically involves entering a password and a one-time code or a biometric scan.
How do I enable 2FA in my demat account?
To enable 2FA in your demat account, log in to your demat account, navigate to the security settings, and find the option for two-factor authentication. Choose your verification method, such as a fingerprint scan or one-time password.
What verification methods can I use for 2FA?
Most platforms offer various verification methods for two-factor authentication, including SMS codes, email verification and authentication apps (like Google Authenticator), or biometric options such as fingerprint scans. However, the verification methods can vary across different brokers.
Does setting up Two Factor Authentication (2FA) require any documents?
Two-factor authentication (2FA) doesn’t require any documentation and can be easily established through the mobile application of the depository participant.
Can I disable two-factor authentication once it is enabled?
You cannot disable two-factor authentication as it has been made mandatory by the SEBI.
Every individual wants to make huge profits in the stock market, but all the profits earned remain in the trading account, which you can’t spend. One must transfer these funds to the bank account to spend it, but you might wonder how to transfer money from a trading account to a bank account and vice versa.
Transactions between a trading account and a bank account could be depositing funds for investment or withdrawing profits after highly successful trades. This article will describe the funds transfer procedure in detail, including different modes of transferring funds and things to remember while transferring funds.
What is A Demat Account?
A Demat account is short for a dematerialized account, which allows investors to hold their securities in electronic form. It simplifies the selling and buying processes of shares and other securities and doesn’t require investors to hold onto physical certificates.
The securities are held in your Demat account, while the trading account is used to place buy or sell orders on the exchange. Trades can be executed using the funds in the trading account, and upon successful execution, shares are either credited or debited to your Demat account. Hence, a Demat account plays a significant part in your investment journey by helping you manage and keep your investments safe.
How to Transfer Money from a Trading Account to a Bank Account?
If you have earned some profit or feel like withdrawing funds, you can follow these steps to withdraw money from a trading account and transfer it to your bank account:
Log in to Your Trading Platform
Start by logging in to your trading platform. Navigate to the “Funds” section.
Select Withdrawal
Click on “Withdraw Funds.” The system will then show the maximum available amount you can transfer from your trading account to your bank account.
Enter the Amount You Want to Withdraw
Enter the amount you wish to withdraw and deposit into your bank account. Make sure that this amount is not more than the available balance of your trading account.
Choose Linked Bank Account
Choose the bank account you already have linked with your trading account for a withdrawal.
Confirm the Transaction
Confirm the withdrawal, and your DP will ensure this amount is reflected in your bank account within 24 to 48 hours.
How to Transfer Money from the Bank Account to the Trading Account?
If you need to fund your trading account before the trading session commences, here’s how you can transfer money directly from your bank account to a Trading account using the trading platform:
Login to Your Trading Account
Open the mobile application or website of the DP and login using your credentials.
Go to the Funds Section
Find the “Funds” or “Add Funds” section. This section will allow you to transfer funds from your bank account to the trading account.
Select the Linked Bank Account
You can link multiple bank accounts to your trading account. Select a bank account from which you want to transfer the funds to your trading account.
Enter the Amount
Enter the amount you want to transfer from your bank account to your trading account. Most platforms allow for instant transfers using net banking or UPI.
Confirm Transfer
Proceed and enter relevant authorization information to confirm the transaction. The transferred amount will appear in the trading account balance.
Different Modes to Transfer Funds
While transferring funds between your bank and trading accounts, you have the following options before you:-
UPI Transfers: UPI transfers are quick, and most trading platforms offer this facility. You can just click on the UPI tab, approve the transaction through your UPI application, and transfer funds instantly.
Payment Gateway: Investors can transfer funds using their debit card or their bank’s internet banking portal. However, some brokers may charge a fee for using the payment gateway mode to transfer funds.
NEFT/RTGS/IMPS: These traditional modes of banking transfers guarantee a safe transfer of funds. NEFT and RTGS are preferred when investors want to transfer huge amounts of capital, whereas IMPS is used for instant transfers.
Tips to Remember During Fund Transfer
When transferring funds from your trading account to your bank account, or vice versa, there are certain issues that you should consider to avoid delay or complications involved in such processes:
Processing Times: Fund transfer usually takes place in an instant, especially with UPI or NetBanking, but withdrawal requests may take up to 48 hours, depending on the processing time of a particular broker.
Transaction fee: Some DPs charge fees for adding and withdrawing funds. Make sure you review any applicable charges with your broker before you initiate the transfer.
Minimum and Maximum Withdrawal Amount: Trading platforms often impose limits on the amount that can be withdrawn on a daily basis. Be aware of these limits to avoid any delays.
Accurate Account Details: Make sure you input the correct details while making fund transfers.
Every investor must understand the process of transferring money from the trading account to the bank account and vice versa. You can withdraw money from your trading account or transfer money to your trading account easily by following the steps listed above. Investors must be cautious of the processing times, transaction fees, and withdrawal limits imposed by the brokers to avoid any hassle.
Frequently Asked Questions (FAQs)
How to transfer money from a trading account to a bank account?
Go to the trading platform, click on “Funds,” select “Withdraw,” enter the amount, and then confirm the transfer funds to your bank account.
What are the different modes to transfer funds?
Investors can use UPI, payment gateway, NEFT, RTGS, and IMPS to add funds to their trading accounts.
How to transfer money from a bank account to a trading account?
Log in to your trading platform and find the “Funds” section. Select the “Add Funds” tab, enter the amount, and confirm the transaction to transfer money to your trading account.
Are there any limits on the amount that can be withdrawn daily?
Some brokers impose a limit on the maximum and minimum amount that can be withdrawn from the trading account on any particular day.
Do brokers charge a fee for transferring funds?
Some brokers charge a fee to facilitate fund transfers. However, this fee varies across different brokers.
A depository is a financial institution that holds and manages securities like stocks, bonds, and other financial assets on behalf of investors, ensuring the safe custody and smooth transactions. Depository Participants act as an intermediary between investors and the depository.
The depositories facilitate buying and selling securities in electronic form and eliminate the need for physical certificates. By providing the services like dematerialization and transfer of ownership and settlement of trades, depositories play a crucial role in maintaining the efficiency and security of financial markets.
In this blog, we will cover all the concepts related to a depository, including its key benefits, various types, and the critical roles it fulfills.
What is a Depository?
A depository is a financial institution that holds securities like stocks, bonds, and other assets electronically and ensures the secure transactions and ownership transfers. It plays a vital role in the financial ecosystem and particularly in the stock market by allowing the investors to trade securities without the need for physical certificates. This electronic system ensures greater efficiency and security in financial transactions. It ensures safe custody and smooth transfers between buyers and sellers and eliminates the risks associated with physical certificates like theft, forgery, or damage.
Functions of a Depository
A depository plays a key role in the financial market and particularly in the stock market by offering a range of functions that ensure secure and efficient management of securities.
It simplifies the entire process of buying, selling, and holding securities in electronic form. Understanding the functions of a depository highlights the benefits and importance of the depository system.
Core Functions of a Depository are:
Dematerialization of Securities
One of the most important features of the depository system is the conversion of physical securities into electronic form. This process is known as dematerialization and reduces the risk of loss and theft or forgery associated with physical certificates and offering greater safety to investors.
Settlement of Trades
A depository ensures the smooth transfer of securities after a transaction is executed in the stock market. It facilitates timely and accurate ownership transfer to ensure the efficient settlement of trades.
Pledging of Securities
Securities held in a depository can be pledged as collateral for loans. This adds to the importance of the depository system as it enables investors to use their holdings for liquidity.
Corporate Benefits Distribution
The depository system ensures that corporate actions like dividends, stock splits, and bonus issues are automatically processed for the investors holding securities in electronic form.
A depository is a vital financial institution primarily responsible for holding and managing securities in electronic form. Understanding the services provided by a depository illustrates its crucial role and the benefits it offers to investors.
Key Services Offered by a Depository are:
Dematerialization
One of the fundamental services offered by a depository is the dematerialization, where physical securities are converted into electronic formats. This process eliminates risks such as theft, loss, or damage to physical certificates and enhances security for investors.
Rematerialization
A depository also offers rematerialization services and allows the investors to convert their electronic holdings back into physical certificates. This flexibility shows the benefits of the depository system and catering to diverse investor needs.
Settlement of Transactions
A critical service provided by a depository is the settlement of trades executed in the stock market. The depository ensures the timely transfer of ownership and accurate recording of transactions, facilitating smoother market operations. This efficiency reflects the importance of the depository system in enhancing the liquidity and stability in financial markets.
Corporate Actions Management
Depositories process corporate actions such as dividend payments, stock splits, and bonus issues for the investors, ensuring that the benefits are directly reflected in the Demat accounts. By automating these processes, depositories ensure that shareholders receive their benefits promptly and accurately.
Pledging of Securities
Investors can pledge their securities held in a depository as collateral for loans. This service enhances the financial flexibility for investors and highlights the importance of the depository system in facilitating liquidity.
Nomination Facility
A depository provides a nomination facility and allows the investors to designate beneficiaries for their securities. This service ensures that assets are transferred to the designated beneficiaries in case of the investor’s denise.
Types of Depositories
By providing safe custody and efficient transaction settlements, depositories enhance financial market stability and investor confidence. Understanding the types of depositories helps investors and stakeholders navigate their options more effectively. There are primarily two main types of depositories:
1. National Depository
A national depository is a key component of the financial market infrastructure, which is established to hold securities in electronic form on behalf of investors. The national depository acts as a centralized entity that facilitates the settlement of trades, ensures the safe storage of securities, and maintains accurate records of ownership.
International depositories provide cross-border transaction settlement services to global investors. These financial institutions help facilitate international trading and cross-border transaction settlements and also act as custodian for global securities. For example, Euroclear is a Central Securities Depository (CSD) for Belgium, Finland, France, Ireland, etc.
Role of Depositories
Depositories play a crucial role in the financial markets by facilitating the safe custody and management of securities. Key functions include dematerialization of physical securities, settlement of trades, and handling of corporate actions like dividends and stock splits. They provide a secure platform for storing and transferring ownership, depositories enhance the market efficiency, reduce risks associated with physical certificates and promote investor confidence.
Depositories offer numerous benefits that significantly enhance the efficiency and security of financial transactions.
Safety and Security: By holding the securities in electronic form, the depositories eliminate risks associated with physical certificates, such as theft, loss, or damage.
Efficiency: The dematerialization process simplifies record keeping and streamlines transactions, enabling quicker transfers of ownership and settlement of trades.
Cost-Effectiveness: The reduction of paperwork and administrative overhead lowers costs for investors, making the transactions more economical.
Ease of Access: Investors can easily access their holdings, track transactions, and manage their portfolios through online platforms provided by DPs.
Corporate Actions Management: Depositories automatically handle corporate actions like dividends, stock splits, and bonus issues, ensuring timely and accurate distribution of benefits to investors.
Pledging of Securities: Investors can pledge their securities as collateral for loans, providing investors additional financial flexibility.
Difference between Depositories and Depository Participants
Depositories and Depository Participants (DPs) serve distinct but complementary roles in the financial market.
Depository: A depository is a financial institution that manages securities in electronic form and facilitates their safe custody, seamless transactions, dematerialization, and corporate actions.
Depository Participants: DPs, on the other hand, are intermediaries authorized by the depository to offer demat services to investors. They act as a bridge between the depository and the investors, providing services such as account opening, dematerialization of securities, etc. Investors place buy and sell orders on the exchange using a trading platform provided by the DPs.
In summary, while depositories provide the infrastructure and services for securities management, depository participants act as an intermediary between the depository and investors, allowing investors to take advantage of the benefits of depositories.
In conclusion, depositories and depository participants are integral to the smooth functioning of the financial market. Depositories provide the framework for the safe custody and management of securities, ensuring efficient settlement of transactions.
In contrast, depository participants act as the link between the depository and investors and facilitate access to these services. Together, they enhance market efficiency, security, and investor confidence and make the process of trading and managing securities more streamlined and accessible. Understanding the distinction between the two helps investors navigate the financial landscape more effectively.
Frequently Asked Questions (FAQs)
What is a depository?
A depository is a financial institution that holds and manages securities like stocks, bonds, etc., in electronic form.
What аre the benefits of a depository system?
The benefits of a depository system include enhanced security as securities are stored in electronic format, reduced paperwork, faster transactions, lower administrative costs and automatic handling of corporate actions (such as dividends), and the ability to pledge securities for loans.
What аre the different types of depositories?
The two main types of depositories are national depositories and international depositories. National depositories, such as the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) in India, serve as centralized institutions for holding securities. International depositories cater to global investors and offer transaction settlement and asset management services to investors across different countries.
What roles do depositories play in the financial market?
Depositories play a crucial role by ensuring the safe custody of securities and offer key services such as dematerialization, pledging, quick trade settlements and processing of corporate actions, thereby enhancing market efficiency and transparency.
How do I open a Demat account with a depository participant?
To open a Demat account with a depository participant (DP), you typically need to provide your PAN card, proof of address, proof of identity and fill out a Demat account opening form.
Let’s suppose you want to close your Demat account but want to hold your securities. In such a scenario, what would you do? Rematerialization is a process that allows investors to convert the securities held digitally back into physical certificates. This method allows investors to close their demat account and hold their securities in physical form.
In this blog, we will provide information about the rematerialization process and different reasons investors have to hold securities in physical form.
What is Rematerialisation?
Rematerialization is the process by which an investor can convert their securities held in electronic form back into physical certificates. In general, it is the opposite of the dematerialization process. However, rematerialization is less common today due to the benefits of holding securities in electronic form. Still, investors can hold the securities in physical form for various reasons, such as personal record-keeping, gifting, or other legal matters.
Process of Rematerialisation
The steps involved in the rematerialization process are mentioned below:
1. Getting RRF – Investors must obtain an RRF, or Rematerialization Request Form (RRF), from their depository participants to rematerialize their stocks kept in demat form.
2.Fill and Submit the Form – Investors must fill out the form with the necessary information, including the client ID, DP ID, share quantity, and company details. Submit the form at the nearest branch of the DP and obtain the acknowledgment slip.
3. Processing – The DP communicates with the depository and forwards the RRF to the Issuer/R&T agent.
4. Issuance of Certificate – After verifying the details, the RTA will process the request appropriately and issue physical share certificates.
5. DP Confirmation – RTA notifies the depository of the acceptance of the RRF request, and the dematerialized shares are debited from the investor’s demat account.
6. Delivery of Certificate – Physical shares will be delivered to your registered address upon completing the process.
The following are the primary reasons why investors convert their electronic securities into physical form:
Flexibility – The rematerialization allows investors to hold the securities in the form that best suits them.
Less Dependency on Technology – Many elderly investors continue to maintain physical documents of their assets because they want to avoid fraud, cyberattacks, and other related risks.
Savings – Investors may prefer to hold securities in physical form because they do not want to pay the fees associated with maintaining a demat account, transactional charges such as brokerages and taxes, etc.
Long-Term Investors – There is a segment of investors who do not wish to trade their securities; hence, they would like to hold them in the physical form.
Legacy – Gifting the shares to their family members as a legacy is also why people prefer to hold securities in physical form.
Legal Requirement – Holding the securities in the physical form is required for legal processes.
Advantages of Rematerialisation
The following are the main benefits of rematerializing securities: –
Physical Ownership – Physical shares give the investor the feeling of tangible asset and direct ownership.
No Demat Account charges– By holding securities in the physical form, an investor can avoid paying various fees related to a Demat account, such as annual maintenance charges.
Ease of Transfer – The physical share certificates can be quickly transferred from one family member to another.
Inactive Demat Accounts – Physical shares are suitable for investors who are not actively trading in the stock market. By holding shares in physical form, investors don’t have to worry about inactive demat accounts.
No Technical Risk – There will be no risk associated with technical failure in the online trading platform, cyber-attacks, frauds, etc., as securities are held in the physical form.
The whole process of rematerialisation takes around 30 days to complete after submitting the request. The breakdown of the same is as follows-
1.Submission of Request – The investor first submits the Rematerialization Request Form (RRF) to their concerned DP, which will take approximately three working days to process the same.
2. Registrar – The Depository Participants send the request to the concerned registrar, which generally takes approximately seven working days.
3.Processing by RTA – Registrar and Transfer Agent takes around 15 to 20 days to issue physical shares, which is the most time-consuming process.
4. Dispatch of Certificate – After the final issuance of the certificate, the shares will be dispatched to the concerned investor. This delivery process will take around 7 days and depends on the postal services.
Hence, the total process will be completed in approximately 30 days; however, depending on other factors, it might take more than 30 days. Investors are advised to get in touch with their DPs if they don’t receive physical share certificates in 40 days.
In conclusion, having securities in physical form does not require you to pay any annual maintenance costs. Physical shares give investors a sense of ownership and may be a requirement for legal processes. However, if you want to buy or sell securities, you must use a registered demat account for all your transactions. Demat account allows for faster and safer transaction processing. It is advised to hold shares and other marketable securities in electronic form.
Frequently Asked Questions (FAQs)
How much time does the process of rematerialization take?
The rematerialization of shares typically takes 30 days.
Are there any charges associated with the rematerialisation process?
Depository Participants charge a fee for the rematerialization of the securities.
What is the difference between dematerialization and rematerialisation of shares?
Dematerialization is the process of converting physical shares into a digital form. Rematerialization of shares is the process of transforming demat holdings into physical share certificates.
Is rematerialisation allowed in India?
Rematerialization is permitted in India.
Can I convert my physical shares again in Demat format?
You can again convert your physical shares into demat format by submitting a Dematerialization Request Form (DRF) to your depository participant.
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