1

LOVELY PROFESSIONAL UNIVERSITY DEPARTMENT OF MANAGEMENT Report on Summer Training Depositories (A Study on Working of depositories in India) Submitted to Lovely Professional University In partial fulfillment of the Requirements for the award of Degree of Master of Business Administration Submitted by: Shelja Verma University Roll No: 33 Registration no: 10804010 DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY JALANDHAR NEW DELHI GT ROAD PHAGWARA PUNJAB

Acknowledgement
An exchange of ideas generates a new impetus to work in a better way. Apart from the ability labor and time devotion, able guidance and wholehearted co-operation are the two pillars for building the success of a project. Whenever a person is helped or co-operated by others, his heart is bound to pay gratitude to his benefactors. The satiation and pleasure that accompany the successful completion of task would be incomplete without acknowledging the contribution of the people who have made it possible and whose constant guidance and encouragement served as a guiding light for the completion of the study. I take this opportunity to express my deep gratitude to Mrs.Ruchi Kakkar, Assistant Professor, Department of Business Management, Lovely Professional University, and Jalandhar, whose able guidance helped immensely in the successful completion of this project. Last but not the least I would like to thank my parent and friends for their support and suggestions.

2 Shelja verma

Guides Certificate
This to certify that Shelja verma, a student of M.B.A, Lovely Professional University Jalandhar has undertaken the project on A Study of Working of Depository System in India, and has successfully completed this project under my guidance. This project was commissioned only for academic purposes, and is certified to be a bonafide work done by student.

Date:

Mr.Sadhu Ram Training Cordinator Department of Business Management Ludhiana Stock Exchange

Preface

3 This project report pertains to the making of the final project of M.B.A curriculum. The purpose of this project is to provide a detailed knowledge and in-depth information about working of depository system in India. The first few chapters provides a theoretical framework of the depository, its functions, the parties constituting the depository system, working of NSDL and CDSL, Dematerialisation, Rematerialisation and types of DEMAT A/Cs. A detailed research on the topic Investors Opinions on Depository Systems Services in India is also conducted to determine customers perceptions about depository systems services. I learned a lot about the topic in the course of putting in much hard work in collecting the relevant information on the topic, which will be of a great use in future too. The project will be of a great help to MBA finance students as it provides a detailed working of depository. It cannot be said with certainty that full justification has been done to the topic in the few pages presented here, but I have tried my best to cover as much ground as possible about A study of working of depository system in India in this report. Sh elja verma

INDEX

Serial No
Chap 1

Particulars
Executive Summary
Ludhiana Stock Exchange a) About LSE b) Vision &Mission c) Governing Board d) Strength of LSE e) Investor related Services f) Listing of securities in LSE

Page no.
07 09 10-15

4 Chap 2 Introduction To Depository System a) About Depository System b) Meaning of Depository system c) Comparison between Bank &Depository d) Need for Depository e) Depository Participant f) Dematerialization g) Demat/ Remat account h) Depositories: A Boon to Capital Market i) Physical Vs Demat j) Types of account Depository Act 1996 a) Introduction about Depository Act b) Legal Framework c) SEBI Regulation Act Depository In India (NSDL &CDSL) a) Introduction of NSDL b) Services offered by NSDL c) Fee Structure of NSDL d) Introduction of CDSL e) Shareholder of CDSL f) Fee structure of CDSL g) Benefits of opening an account with CDSL h) Function of CDSL& NSDL Research Methodology a) Objective of Study b) Method of Data collection c) Research Design d) Analysis &Interpretation e) Findings f) Conclusion Annexure PARTICULARS Depository Participant in Depository system Duration of Holding and Trading in Securities (In Years) Shows the frequency and percentage of usual modes of trading used by different respondents Different Areas of Investment in Securities Market. Factors important for a trading company to enhance the loyalty of its customers Time Duration in Which Depository Participant 16-37

.Chap 3
Chap 4

38-47

48-59

Chap 5

60-73

TABLE NO. 1 2 3 4 5 6

PAGE NO. 62 63 64 65 66 67

5 Contacts its Customers 7 8 9 Reasonability of Service Charges of DEMAT A/C Sufficient knowledge and awareness about NSDL or CSDL Personal details 68 69 70

Executive Summary
V S RAMA RAO on DECEMBER 10, 2008 The Move on Depository System in India The move on depository system was initiated by the Stock Holding Corporation of India Limited (SCHCIL) in July 1992 when it prepared a concept paper on National Clearance and Depository Systems in collaboration with Price warehouse under a program sponsored by the US Agency for international Development. Thereafter, the Government of India constituted a technical group which submitted its report in 1993. The depositories Act was passed by parliament in August 1996. It lays down the legislative framework for facilitating dematerialization and book entry transfer of securities in a depository. The Act provides that a depository is required by a company under the Companies Act, 1956 and depository participants (DPs) need to be registered with SEBI. The investors have the option to hold securities in physical or dematerialized form. Nidheesh K B , 2008,Demat Processing in India In the Indian stock markets began in the 1970s, with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies, which created a surge in retail investing. The early 1980s witnessed another surge in stock markets when major companies such as Reliance accessed equity markets for resource mobilisation that evinced huge interest from retail investors. A new set of economic and financial sector reforms that began in the early 1990s gave further impetus to the growth of the stock markets in India. As a part of the reform process, it became imperative to strengthen the role of the capital markets that could play an important role in efficient mobilisation and allocation of financial resources to the real economy. Towards this end, several measures were taken to streamline the processes and systems including setting up an efficient market infrastructure to enable Indian finance to grow further and mature. The importance of an efficient micro market infrastructure came into focus following the incidence of market abuses in securities and banking markets in 1991 and 2001 that led to extensive investigations by two respective Joint Parliamentary Committees. The Securities and Exchange Board of India (SEBI), which was set up in 1988 as an administrative arrangement, was given statutory powers with the enactment of the SEBI Act, 1992.

6 Objectives of the study is To study and analyse the process of Dematerialisation and Investors opinion towards Demat Processing., To know and explain procedure for opening of Demat account and process of dematerialization of securities to eliminate the problem related with physical holdings of securities., To explain the advantages of Dematerialisation of securities, convince and make them to dematerialize their securities., To know the problem faced by the investor and reason for physical holdings of securities without dematerialization of securities., To give awareness among the investors about Demat and to make them to open Demat Account.

Central Depository Services (India) Limited, 2010, Inspection Manual CDSL has formulated bye laws, operating instructions and also it comes out with amendments regularly through communiqus. It is very crucial for depository to ascertain whether the RTA so registered carries on the operations in the overall interest of the capital market and the investors. To achieve this objective, CDSL conducts regular Inspection of its DPs and RTAs through their own staff and independent firms of professionals. The underlying focus of these inspections is to improve the operations of the RTA, to verify whether RTA are aware of and adhere to the Act, Rules, Regulations, various communiqus issued by CDSL and to ensure better and efficient record keeping by them so that better services are provided to the investor. NSDL, 2011Handbook for NSDL Depository Operations Module (published by NSDL) This handbook has been divided into four volumes for readers' convenience. The first volume gives an overview of the Indian capital market and NSDL depository system. The second volume deals with admission procedure for different business partners of NSDL, their obligations, practices, systems and procedures to be followed by them and benefits and safety of depository system. The third volume helps in acquiring a working level understanding of certain basic services offered by NSDL like, account opening, dematerialisation, and transfer of securities and related operations. The last volume deals with special services offered by NSDL like Pledge, Stock Lending and Borrowings, Corporate Actions, National Savings Certificates / Kisan Vikas Patra (NSC/KVP) in demat form, Warehouse Receipts, Market Participants and Investor Database (MAPIN) and Tax Information Network (TIN). The procedures explained in the handbook are based on the Depositories Act, Securities and Exchange Board of India (Depositories & Participants) Regulations and Byelaws & Business rules of NSDL. The book contains illustrations, flow charts and checklists for better Understanding of various concepts and procedures. A sample test paper is given at the end of the fourth volume to help the candidates appearing for NCFM test form an assessment of their preparedness. A thorough understanding of this handbook will form a good base for qualifying the certification test. Readers may like to visit NSDL website www.nsdl.co.in for updates and to know the new procedures introduced or changes brought about in the existing procedures. A feedback form is given at the end of the fourth volume. Readers may give their feedback, which will be of great help in enhancing the value of this Handbook in its subsequent editions.

Prof. Sultan Singh &Sakshi Goyal, 2011, Analysis of Factors Affecting the Decision Making of the Investors in Depository System The present study is an attempt to study the factors affecting the decision making of the investors in depository system. The primary data are collected with the help of pre-tested structured questionnaire on five point Likert scale from 294 respondents (investors) of different age, gender, education, occupation, income from the cities like Gurgoan, Chandigarh and New Delhi, selected on the basis of convenience sampling. The data collected have been analysed with the help of various descriptive statistics like frequency and present and the results are tested by the use of ANOVA technique. Most of the investors are of the view that shorter settlement period, safety of securities with the depositories, attitude of the staff available with the DPs, timely services provided by the DPs to the investors, reduction in transaction cost, repatriation of sales proceeds of shares/debentures by NRIs are some of the factors which affects the decision making of the investors in depository system. Opening demat account with DPs is easy but they charge for providing this service. Converting the securities into electronic from and selling the securities on behalf of the minors are difficult in the system. But they are of the view that T+3 and ruling settlement is the result of the depository system. The education of the investors plays an important role in decision making where the difference in the opinions of the investors is found significant in most of the cases, followed by other factors such as occupation, age, etc. Atin Kumar Das on April 9, 2011, Law relating to Depositories with Special Reference to India: An Analytical Study This article explains different laws that regulate working of depositories in India. Article explains the Depositories Act-1996, SEBI (Depositories and Participants) Regulations- 1996, Companies Act- 1956, Securities and Exchange Board of India Act- 1992, Prevention of Money Laundering Act-2002. Apart from the above-mentioned Acts and Regulations it also explains Bye Laws of the depository, Operating Instructions of the depository.

Chapter -1 Ludhiana Stock Exchange

LUDHIANA STOCK EXCHANGE

Ludhiana Stock Exchange Association Limited (LSE) was established in the year 1983. By 1999-2000, the exchange had a total of 284 brokers, out of which 79 were corporate brokers. Among 284 brokers, it was further classified as 212 proprietor brokers, 2 partnership brokers and 70 corporate brokers. Then, there was only 23 sub-brokers registered. Ludhiana Stock Exchange became the second bourse in India to introduce modified carry forward system after BSE on April 6, 1998. On the same date, LSE also introduced a settlement guarantee fund (SGF). The SGF guarantees settlement of transactions and the carry forward facility provides liquidity to the market.

9 LSE became the first in India to start LSE Securities Ltd., a 100% owned subsidiary of the exchange. The LSE Securities got the ticket as sub-broker of the NSE. In 1998, the exchange also got permission to start derivative trading. For the settlement of dematerialized securities, the Ludhiana Stock Exchange has also been linked up with National Securities Depository Ltd. (NSDL). The Stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the States under its jurisdiction. Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other Stock Exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by National Stock Exchange and Bombay Stock Exchange, entering into the field of Commodities trading or imparting education to the public at large by the way of starting certification program in Capital Market. VISION AND MISSION STATEMENT Reaching small investors by providing services relating to Capital market including Trading Depository operations etc and creating Mass Awareness by way of education and training in the field of Capital market. To create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market. Further, the exchange has 295 members out of which 171 are registered with national Stock exchange as Sub- broker and 124 with Bombay Stock exchange as sub- brokers through our subsidiary.

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The composition of the Governing Board is as under:Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Name of Director Prof. PadamParkashKansal Sh. Joginder Kumar Sh. VikasBatra Sh. Rajinder Kumar Singla Sh. Ashok Kumar Sh. SatishNagpal Sh. Ashwani Kumar Sh. V.P. Gaur Dr. Raj Singh, RoC Sh. Sanjay Anand Sh. Sunil Gupta Sh. Jaspal Singh

Overview Of Ludhiana Stock Exchange

1. OBJECTIVES OF THE COMPANY LSE Securities Limited is a subsidiary of the Ludhiana Stock Exchange, which was formed with an objective to enhance business and investment opportunities for the investors and members of Ludhiana Stock Exchange at large, through innovative products by encompassing a variety of activities related to the capital market. The company has a paid-up capital of Rs 5.55 crores. 2. INTRODUCTION OF THE LSE SECURITIES LTD. LSE Securities Ltd., was incorporated in January, 2000 with a view to revive the capital market in the region and for taking full advantage of the emerging opportunities being provided by expansion of bigger stock exchanges like NSE and BSE. The company since its inception has marched forward rapidly and achieved many milestones in a short span of existence. 3. GOVERNING COUNCIL The Council of the management of the Company comprises of 10 directors of which 3are broker members and 7non-brokers. Five non broker members are Independent Directors of eminent status from the field of finance, law and management and remaining two are Chief Executive Officer of LSE Securities Limited and Executive Director of the holding company (Ludhiana Stock Exchange), who are on the Board of the company as ex-officio Directors. Thus the council of management has representation of sub-brokers as well as professionals and subject specialists representing various fields of business activities. 4. CORPORATE MEMBERSHIP OF NSE & BSE

11 SEBI, at the initiative of LSE, permitted smaller Stock Exchanges, to trade on bigger Stock Exchanges through their subsidiary companies. The Ludhiana Stock Exchange floated its subsidiary company, the LSE Securities Limited, with the objective of obtaining trading rights on bigger Stock Exchanges. It has obtained corporate membership of both NSE and BSE in the first half of year 2000. 5. F&O SEGMENT OF NSE The LSE Securities Ltd. commenced trading operations in Future and Options Segment of NSE in February 2002. The Company became the first subsidiary of any Regional Stock Exchange which commenced trading in F&O Segment of NSE. Response to trading facilities in the F&O segment of NSE has been very encouraging and volumes generated in this segment soon exceeded those in Capital Market segment. 6. TRADING THROUGH V-SATS The LSE Securities Limited has provided facility to its sub-brokers for trading on NSE and BSE through VSAT counters which are located outside Stock Exchange Building. During 2005-2006, 27 sub-brokers of the company have been trading through VSAT on NSE and 13 on BSE. 7.CERTIFICATION IN FINANCIAL MARKET In order to provide professional services to the investors of LSE Securities Limited through its sub-brokers, the company motivated its sub-brokers and its staff to qualify the certification in financial markets conducted by NSE. All trading terminals for Capital Market Segment and F&O segment are being operated by the persons after having qualified the said certification 8. DEPOSITORY PARTICIPANT SERVICES NATIONAL SECURITIES DEPOSITORY LIMITED (NSDL) The LSE Securities Ltd. commenced its operations as Depository Participant of NSDL in August 2000. The DP services provided by the Company have technology edge over other DPs, as DP of the company is the only On-line Real-Time DP in the region. As a result of efficient services and competitive rates, the Company has been able to increase its market share in the DP business at the cost of other DPs in the region. As on date DP of NSDL and CDSL of the Company at Ludhiana is servicing over 35000 beneficiary accounts.

9. DEPOSITORY PARTICIPANT SERVICES CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED (CDSL) In order to further strengthen its services to sub-brokers and investors, the Company applied for the DP of CDSL. It started DP operations of CDSL in December 2001. With the

12 operationalisation of DP Services of CDSL, the Company has been able to provide delivery of shares to sub-brokers and investors on the day of pay-out which in turn helps the sub-brokers to give timely deliveries to their clients. Introduction of CDSL operations has also enabled the subbrokers and investors of the Company to timely meet the pay-in obligations of securities purchased by the investors on BSE and sold next day on NSE through the Company and viceversa. 10.EXPANSION PROJECTS To increase its presence in the region further, the company plans to open its branches of Depository Services in the major cities of the region. To start with, it has already opened its branches at Jalandhar Amritsar and Chandigarh.

Strength of Ludhiana Stock Exchange

.1. LSE brand is popular among masses. The brand image of LSE can be capitalized. 2. We have requisite infrastructure for the Capital Market activities which includes a multistoried, centrally air conditioned building situated in the financial hub of the city i.e. Feroze Gandhi Market. 3. We have well experienced staff handling operations of Stock Exchange. 4. We have competent Board and professional management. 5. We have much needed networking of sub brokers in the entire region, who are having rich experience in Stock Market operations for the last 31 years. 6. We have more than 46,000 clients spread across Punjab, Himachal Pradesh, Jammu & Kashmir and adjoining areas of Haryana and Rajasthan. 7. The turnover of our subsidiary is the highest amongst all subsidiaries of Regional Stock Exchanges in India.

Investor related services

The Exchange has been providing a variety of services for the benefit of investing public. The services include Investor Service Centers, Investor Protection fund and Investor Educationa Seminars. (I).INVESTOR SERVICE CENTRES :- The Exchange has set-up Investor Service Centre at LSE Building for providing information relating to Capital Market to the general public. The Centres subscribe to leading economic, financial dailies and periodicals. They also store the Annual Reports of the companies listed at the Stock Exchange. The Investor Service Centers are also equipped with a Terminal for providing live rates of trading at NSE and BSE. A large number of the investors visit the centre to utilize the services being provided by the Exchange. (II).INVESTOR AWARENESS SEMINARS:- The Exchange has been organizing Investor Awareness Seminars for the benefit of Investors of the region comprising State of Punjab, Himachal Pradesh, Jammu & Kashmir, Chandigarh and adjoining areas of Haryana and Rajasthan. This massive exercise of organizing Investor Awareness Seminars has been launched as a part of Securities Market Awareness Campaign launched by SEBI in January, 2003. The Exchange apprises the investors about Dos and Donts to be observed while dealing in

13 Securities Market. During 2011-2012, till date, Exchange has organized more than 83 workshops in the region mentioned above. (III).WEBSITE OF THE EXCHANGE:- www.lse.co.in The Exchange has its own website with the domain name www.lse.co.in. The website provides valuable information about the latest market commentary, research reports about companies, daily status of International markets, a separate module for Internet trading, information about listed companies and brokers and subbrokers of the Exchange and its subsidiary. The website also contains many useful links on portfolio management, investor education, frequently asked questions about various topics relating to Primary and Secondary Market, information about Mutual Funds, Financials of the Company including Quarterly Results, Share Prices, Profit and Loss Accounts, Balance Sheet and Many More. The website also contains daily Technical Charts of various scrips being traded in BSE and NSE.

Listing of Securities at Ludhiana Stock Exchange

At present, Ludhiana Stock Exchange has 324 listed companies, out of which 211 are regional and 113 are Non-regional. The total listed capital of aforesaid companies is Rs. 3063.56 Crores. The market capitalization of the said companies is more than Rs. 1890.53 crores. The Stock Exchange is covering the vast investor base through the listing of above said companies, which are situated in the region comprising of Punjab, Himachal Pradesh, Jammu & Kashmir, and Chandigarh. Ludhiana Stock Exchange has facilitated the capital generation for agro based industries as Punjab is a agricultural led economy. It will continue to do so, once it gets approval for a tie up with bigger Exchanges for commencing trading operations.

Chapter- 2 Introduction to Depository System

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Introduction to Depositories system

A depository system where is a place to deposit something for safekeeping as bank in which funds or securities are deposited by other under the terms of depository agreements. The principal function of a depository is to dematerialize securities and enable their transactions in book-entry form. The securities are transferred by debiting the transferors depository account and crediting the transferees depository account. A significant development of the 20th century particularly in its later part is expansion of financial market world over which mostly was driven by globalization, technology, innovations and increasing trade volume. India has not been an exception with probably largest number of listed companies with a very large investor population and ever increasing volumes of trades. However, this continuous growth in activities increased problems associated with stock trading. Most of these problems arose due to the intrinsic nature of paper based trading and settlement, like theft or loss of share certificates. This system required handling of huge volumes of paper leading to increased costs and inefficiencies. The process beginning from buying shares through the stock exchanges till getting the certificates duly endorsed in the buyers name was indeed quite complex and time-consuming and was riddled with a variety of problems. Growing number of investors participating in the capital market has increased the possibility of being hit by a bad delivery, The cost and time

15 spent by the brokers for rectification of these bad deliveries tends to be higher with the geographical spread of the clients. The increase in trade volumes lead to exponential rise in the back office operations thus limiting the growth potential of the broking members. The inconvenience faced by investors (in areas that are far flung and away from the main metros) in settlement of trade also limits the opportunity for such investors, especially in participating in auction trading. The physical form of holding and trading in securities also acted as a bottleneck for broking community in capital market operations. Risk exposure of the investor also increased due to this trading in paper. Some of these associated risks were: delay in transfer of shares, possibility of forgery on various documents leading to bad deliveries, legal disputes etc., and possibility of theft of share certificates, prevalence of fake certificates in the market, mutilation or loss of share certificates in transit. Thus, the system of security transactions was not as investor-friendly as it ought to be. In this scenario dematerialized trading under depository system is certainly a welcome move. This popular financial service emerged in Germany first time.

Meaning of depository A depository is an organization which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities. Depository Every depository is required to maintain the following records and documents. These have to be preserved for a minimum period of five years. 1. Records of securities Dematerialised and Rematerialised. 2. The names of the transferor, transferee, and the dates of transfer of securities. 3. A register and an index of beneficial owners. 4. Details of the holdings of the securities of beneficial owners as at the end of each day. 5. Records of instructions received from, and sent to, participants, issuers, issuers' agents and beneficial owners. 6. Records of approval, notice, entry and cancellation of pledge or hypothecation. 7. Details of participants. 8. Details of securities declared to be eligible for dematerialisation in the depository. 9. Such other records as may be specified by SEBI for carrying on the activities as a depository

Comparison between bank and depositories:Dissimilarity:Basis of differentiation Bank account Depositories

16 1.Form of deposits/holding 2. Usage 3. Facilitates 4. Where to open 5.Requirement of Pan Number 6. Minimum balance Funds Safekeeping of money Securities Safekeeping of shares

Transfer of money (without Transfer of shares (without actually handling money) actually handling shares) A bank of choice A DP of choice Not mandatory Specified by banks Mandatory (effective from2006) No such requirements

Similarity: 1. Promoted by reputed persons and institutions: promoters of both bank and depository are reputed persons and institutions 2. Renders safe keeping services: both banks and depository provide safe keeping services. Banks provides safe custody of cash and locker facility for keeping valuable articles to its clients. Depositories also provide safe keeping of shares, debentures, bonds, government securities, mutual fund units to its clients. 3. Central office and branches 4. Charge of fees 5. Transfer of funds and securities: Funds/securities are transferred only at the instruction of the account holder 6. Written confirmation of transfer (of shares and currencies) 7. Account is operated by power of attorney: a person under power of attorney can operate the account. 8. Customers are entitled to get statement s of accounts 9. Nomination facility: customer can nominate any person to whom account will be transferred in case of death of the person.

Need for Depositories system

Because of some reason need of depositories arises and these reasons are:1. Because of significant growth in financial market worldwide, over which mostly driven globalization, technology innovation and high trade volume. 2. To solve the problem of Intrinsic nature of paper based trading and settlement. 3. Solve the problem of loss of share certificate 4. To reduce the paper leading cost and work is done with greater efficiency 5. The cost and time spent by the brokers for rectification of these bad deliveries tends to be higher with the geographical spread of the clients. 6. The increase in trade volumes lead to exponential rise in the back office operations thus limiting the growth potential of the broking members.

Depositories participants

17 A DP is investors representative in the depository system and as per the SEBI guidelines, financial institutions/banks/custodians/stock brokers etc. can become DPs provided they meet the necessary requirements prescribed by SEBI. The regulations have selected various categories of market participants who are eligible to become depository participants who have a well-established customer interface network. These categories are:a) Public Financial Institutions. b) Scheduled Banks. c) RBI approved Foreign Banks Operating in India. d) State Financial Corporations. e) Certified Custodians of Securities. f) Clearing corporations of Stock Exchanges. g) Registered Stock Brokers. h) Non-Banking Financial Companies Benefits of Depositories As an investor you will enjoy many benefits if you buy and sell shares in the depository mode. The following are some of the benefits you will enjoy: No bad deliveries No risk of loss, mutilation or theft of share certificates No stamp duty for transfer of shares Reduced paper work Fast settlement cycles Low interest rates on loans granted against pledge of dematerialized securities by banks Low margin on securities pledged with banks Increase in liquidity of your securities because of faster transfer and registration of securities in your account Instant disbursement of non-cash benefits like bonus and rights into your account

DEMATERIALISATION OF SECURITIES :
Dematerialization is relatively a new concept introduced in the securities market. It is basically a process by which the physical certificates of an investor are taken/surrenderedby/to the company/registrar and actually destroyed and an equivalent number of securities are credited in the depository account of the investor on request of the investor. To overcome the problems associated with settlement of physical share certificates and to provide electronic depository facilities for securities traded in the equity and the debt markets, the process of dematerialization of shares was evolved. Meaning of Dematerialisation:Dematerialization is a process by which a client can get physical certificates converted into electronic balances maintained in its account with the depository participants. Securities held in dematerialization form are fungible i.e. They do not bear any distinguishable features. Each of the securities dematerialized in the NSDL/CDSL depository bears a distinctive ISIN identification number which is called International securities number which is unique for each

18 security and Issued in any International standard organization member countries in accordance with the ISIN standards. There are five main parties involved in the process of dematerialization as follows: 1) The Investor He is one who wishes to convert his physical holdings into electronic form. 2) Depository Participant-It is a representative in the depository system and it maintains the clients securities account balance. 3) Depository: - It is an organization where securities of shareholders are held in electronic form at the request of the shareholder through the medium of the depository participant 4) Registrar and Share Transfer Agents They provide the facility of dematerialization of shares of the company held by the shareholder. They enter into the tripartite agreement with NSDL and the company whose shares are to be dematerialized. 5) Company It is the company whose shares, debentures, etc are traded with the depository in the demat form.

Advantages of dematerialization To The Company 1. Less paper work 2. Reduced cost. 3. Better and faster facility for share transfer.

To The Investor 1. Less paper work 2. No filling of transfer deed and lodging 3. Easily transfer of shares.

4. No legal consequences for non compliance 4. No loss of shares certificate, no forgeries or of rules and regulations. frauds, No bad delivery of shares

Process for Dematerialisation

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An investor having securities in physical form must get them dematerialised, if he intends to sell them. This requires the investor to fill a Demat Request Form (DRF) which is available with every DP and submit the same along with the physical certificates. Every security has an ISIN (International Securities Identification Number). If there is more than one security than the equal number of DRFs has to be filled in. The whole process goes on in the following manner:

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i) Appointing DP Any investor who intends to transact through depository system has to engage one depository participant (DP). He can approach a DP of his choice and open an account with him just like one opens an account with a bank. Investor gets an identification number called Client ID (just as one gets ones bank account number) which serves as a reference point for all his transactions with D.P. Every investor before getting his holding dematerialised has to enter into an agreement with the depository through a participant. This step is necessary whether investor already has securities or securities are yet to be issued in a fresh issue. The investor contracts only with that depository which accepts his security in depository mode since it is not necessary that all eligible securities must be in depository mode and with all the depositories. The decision on whether or not to hold securities within the depository mode and if in depository mode, with which depository or participants, would be entirely with the investor. ii) Request for Demat After any agreement is entered for getting securities dematerialized and his account is opened, the investor makes an application to depository participants in form called Dematerialisation Request Form (DRF) to be provided by the DP and hands over his share certificates duly cancelled by writing surrendered for dematerialisation to them for demat. The DP will accept certificates registered only in investors name. The request for dematerialisation with the depository participants is sent to the depository through depository network with which DP is connected. Simultaneously DP submits the securities certificates to the issuer company or its Registrar of transfer. iii) Approach the Company or Registrar of Transfer The depository will electronically intimate the issuer or its Registrar and transfer agent of the dematerialisation request. The issuer or the Registrar and transfer

21 Agent has to verify the validity of the security certificates as well as the fact that the DRF has been made by the person recorded as a member in its Register of Members. If the issuer or its Registrar is satisfied, it dematerialise the scrip and updates its record. iv) Confirmation of Demat The Registrar to transfer or the concerned company when satisfied with the case of demat has to inform the depository of the completion of dematerialisation authorizing an electronic credit for that security in favour of the investor. v) Crediting the Clients Account DP credits investors account with the number of shares so dematerialised and thereafter investor hold the securities in electronic form. If there is rejection of demat request then such credit is not given. After crediting the account, the client is sending the necessary information in form of a statement like we get bank statement after bank transactions.

Demat Account
Definition Demat account is a safe and convenient means of holding securities just like a bank account is for funds. Today, practically 99.9% settlement (of shares) takes place on demat mode only. Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the exchanges. Benefits Of Demat Account 1. A safe and convenient way of holding securities (equity and debt instruments both). 2. Transactions involving physical securities are costlier than those involving dematerialised securities (just like the transactions through a bank teller are costlier than ATM transactions). Therefore, charges applicable to an investor are lesser for each transaction. 3. Securities can be transferred at an instruction immediately. 4. Increased liquidity, as securities can be sold at any time during the trading hours (between 9:55 AM to 3:30 PM on all working days), and payment can be received in a very short period of time. 5. No stamp duty charges. 6. Risks like forgery, thefts, bad delivery, delays in transfer etc., associated with physical certificates, are eliminated. 7. Pledging of securities in a short period of time. 8. Reduced paper work and transaction cost. 9. Odd-lot shares can also be traded (can be even 1 share).

22 10. Nomination facility available. 11. Any change in address or bank account details can be electronically intimated to all companies in which investor holds any securities, without having to inform each of them separately. 12. Securities are transferred by the DP itself, so no need to correspond with the companies. 13. Shares arising out of bonus, split, consolidation, merger etc. are automatically credited into the demat account of the investor. 14. Shares allotted in public issues are directly credited into demat account of the applicants in quick time.

Opening a Demat Account To start dealing in securities in electronic form, one needs to open a demat account with a DP of his choice. An investor already having shares in physical form should ensure that he gets the account opened in the same set of names as appearing on the share certificate; otherwise a new account can be opened in any desired pattern by the investor. Getting started 1. Choose a DP 2. Fill up an account opening form provided by DP, and sign an agreement with DP in a standard format prescribed by the depository. 3. DP provides the investor with a copy of the agreement and schedule of charges for his future reference. 4. DP opens the account and provides the investor with a unique account number, also known as Beneficiary Owner Identification Number (BO ID). Documents to be attached 1. Passport size photographs 2. Proof of residence (POR) - Any one of Photo Ration Card with DOB / Photo Driving License with DOB / Passport copy / Electricity bill / Telephone bill 3. Proof of identity (POI) - Any one of Passport copy / Photo Driving License with DOB / Voters ID Card / PAN Card / Photo Ration Card with DOB 4. PAN card Note:

23 1. The agreement required to be signed by the investor details the rights and duties of the investor and DP. 2. DP may revise the charges by giving a 30 days prior notice. SEBI has rationalized the cost structure by removing account opening charges, transaction charges for credit of securities and custody charges, effective from January 28, 2005. Maximum Number of holders in a Demat Account a maximum of three persons are allowed to open a joint demat account in their names.

Rematerialisation

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Rematerialisation is a process of converting electronic holdings of investor back into share certificates in paper form. The process of Rematerialisation is also carried out through DP and the process has to be completed within a period of 30 days. Thus, once security is dematerialised it is not necessary that investor is to continue in depository mode for all times to come. He can switch over to remat whereby he gets back physical possession of security scripts. The client of DP has to submit a request for remat. This request is forwarded for necessary action to depository. The depository confirms the rematerialisation request to the Registrar and Transfer Agents. The Registrar updates the accounts and prints the desired certificate. The depository is informed by Registrar and certificate is sent to the investor. The depository updates its records and communicates to DP to incorporate necessary changes in the account of the client.

Depositories: A Boon to Capital Market

The Indian Capital Market has witnessed numerous changes in the recent past as seen earlier. Traditionally stock market booms and decline have resulted in a no. of problems for lay investor. And the reasons of these problems are occur due to the intrinsic nature of paper based trading and settlement system. The dematerialization system in Indian financial market helps the investor to safeguard their share and securities so that, these securities cannot be lost and there is no misuse. After dematerialization it helps capital market to grow at very high speed. And it also provide these facilities which are;1. Availability of timely, on-line information on investment needs and Timely market commentary to make investment decisions

25 2. Timely information on corporate actions of specific companies and availability of analyst and research reports on specific companies 3. Availability of information at affordable cost 4. 5. 6. Nationwide reach Investors not at the mercy of brokers to execute deals Privacy to investors in terms of orders

7. . Possibility of timing the order at the required price 8. . Immediate execution and confirmation of trades 9. Immediate receipt of scrips/money in purchases/sales 10. No need for maintenance of physical and electronic records 11. . Efficient customer service for retail investors These are the solution of the problem of intrinsic nature of paper based settlement trading which is solved through the Dematerialization and help in growing the capital market in India.

Phsysical Vs Demat
In Physical form In demat form

1. Space required for storage and safety

1. No space required

2.Exclusive manpower to be allocated 3.Insurance ID required 4. Laborious inventory verification during internal stock taking and statutory audit. 5.Pledging of shares is cumbersome

2. This function can be clubbed with other function. No exclusive manpower required 3.No insurance required 4. Periodic statement of holding is made available by the DP. Easy verification for audit. 5. Pledging is safe and easy.

6. Receipt of corporate benefits needs monitoring and risks of loss in transit not ruled out.

6.Faster and hassle-free receipt of corporate benefits

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TYPES OF ACCOUNTS
Type of depository account depends on the operations to be performed. There are three types Of demat accounts which can be opened with a depository participant viz. (a) Beneficiary Account (b) Clearing Member Account (c) Intermediary Account.

1. Beneficiary Account: This is an account opened by investors to hold their securities in dematerialised form with a depository and to carry out the transactions of sale and purchase of such securities in book entry form through the depository system. A beneficiary account holder is legally entitled for all rights and liabilities attached to the securities (i.e. equity shares, debentures, government securities, etc.) held in that account. Therefore, the account is called beneficial owner account".

27 A beneficiary account can be in the name of an individual, corporate, Hindu Undivided Family (HUF), minor, bank, financial institution, trust, etc. or the broker himself for the purpose of his personal investments in demat form. The account is opened with a DP. A new sub-type viz. "Margin Account" has been added to the Client types viz.; 'Resident' and 'Body Corporate' under Client Maintenance Module in DPM Application Software (DPMAS). The new sub-type "Margin Account" is added to enable Clearing Members (CMs) to open beneficiary accounts to hold securities for client margin purposes. New sub-types are also added to enable promoters to separately hold securities issued as "Promoter" of the company. House account vs. non-house account An account opened by a DP for the custody of and transactions in its own investments is referred to as a house account, and all other beneficiary accounts are referred to as non-house account. DPs are required to open house accounts for their own investments to prevent co-mingling of their assets with that of their clients. Neither the Depositories Act nor the regulations made under the Act lay down any specifications about who can open a beneficiary account. Since all beneficial owners are deemed to be members of a company (under section 41(3) of the Companies Act), only those who are eligible to become members of a company under the Companies Act, can open a beneficiary account with a depository. Thus, all legal entities with the exception of partnership firms can open an account in the depository system. Documents for Verification I. Non-body Corporate Investors: For the purpose of verification, all non-body corporate investors have to submit the following documents, as prescribed by SEBI, along with the stipulated account opening form. A beneficiary account must be opened only after obtaining a proof of identity and address of the applicant. An authorised official of the Participant should verify the photocopies of any of following documents submitted with their corresponding originals and put his/her signature on them with remarks "verified with original" before proceeding to open the account. (a) Proof of Identity (POI)I. Passport II. Voter ID card

28 III. Driving license IV. PAN card with photograph V. MAPIN card (SEBI vide its Circular No. MRD/DoP/Cir-08/2007 dated June 25, 2007 has communicated its decision to discontinue with the requirement of Unique Identification Number (UIN) under the SEBI (Central Database of Market Participants) Regulations 2005 (MAPIN regulations)/circulars. VI. Identity card/document with applicant's Photo, issued by a) Central/State Government and its Departments, b) Statutory/Regulatory Authorities, c) Public Sector Undertakings, d) Scheduled Commercial Banks, e) Public Financial Institutions, f) Colleges affiliated to Universities (this can be treated as valid only till the time the applicant is a student), g) Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc., to their Members; and h) Credit cards/Debit cards issued by Banks. (b) Proof of address (POA) I. Ration card II. Passport III. Voter ID card IV. Driving license V. Bank passbook Bank passbook is one of the Proof of Address (POA) being submitted by applicant(s) to the DP at the time of opening depository account. In this regard, procedure is as Follows, (i) Computer generated original bank statement: DPs may accept the computer did not generate original bank statement as POA if obtaining the copy of bank passbook nor attestation (stamp and signature) of the authorised official of the bank on the original bank statement is feasible. Provided such original bank statement is printed on the stationery of the bank Carries logo &

29 name of the bank, displays the name, address and bank Transactions/holdings of the Client for the latest quarter ending. (ii) Computer generated bank statement on plain paper: DPs may accept the computer generated bank statement which is printed on a Plain paper as POA provided it clearly mentions the name, address and bank Transactions/holdings of the Client for the latest quarter ending. Provided such A bank statement is duly attested (signed and stamped) by the authorized official Of the bank mentioning the name and designation of such authorised official. In both the aforesaid circumstances, DPs are advised as follows: a) Obtain a cancelled cheque in original and signature of the applicant(s) (all The holders in case of joint holdings) on the bank statement. b) The bank statement should be of the latest quarter ending e.g. depository Accounts opened in the month of April, May and June should be supported by the bank statement of the quarter ending March 31. A. At the time of opening demat accounts: DPs should ensure compliance with the various guidelines/circulars issued By NSDL on account opening and after satisfying itself, may capture the Address including landmark details in the DPM System as provided by the Clients in the account opening forms. B. Change in landmark details: In case of change (addition/deletion/modification) in the landmark details Already captured in the DPM system at the time of opening demat accounts, DPs may limit the changes to the landmark details after obtaining a request From the Clients on a plain paper, which is signed by all the holder(s) (in Case of joint holdings). DPs are advised to note that the primary address Captured in the DPM system as mentioned in the proof of address, at the Time of opening demat accounts should remain intact, limiting the changes To the landmark details. VI. Verified copies of:- a) Electricity bills (not more than two months old),b) Telephone bills (not more than two months old) pertaining to only Landline telephones (other than Fixed Wireless Phone) irrespective of the service provider can be accepted by DPs as POA. (DP may ascertain the fact that such telephone number exists in the name of the entity, by making a call or by any other means) and c) Leave and License Agreement / Agreement for sale. VII. Self-declaration by High Court & Supreme Court judges, giving the new address In respect of their own accounts.

30 VIII. Identity card/document with address, issued by a) Central/State Government and its Departments, b) Statutory/Regulatory Authorities, c) Public Sector Undertakings, d) Scheduled Commercial Banks, e) Public Financial Institutions, f) Colleges affiliated to Universities (this can be treated as valid only till the time .The applicant is a student) and g) Professional Bodies such as ICAI, ICWAI, Bar Council etc., to their Members. In case of joint holdings, POI and POA documents must be collected in respect of all Account holders. The aforesaid documents are the minimum requirement for opening a BO Account. Participants are advised to exercise due diligence while establishing the identity of the person to ensure the safety and integrity of the depository system. Participants can apply stricter criteria and accordingly, decide to accept, select documents out of the list of documents prescribed by SEBI, as proof of identity/address. II. For Corporate Investors: For the purpose of verification, all corporate investors have to submit the following documents as prescribed by SEBI along with the stipulated account opening form. (1) Memorandum & Articles of Association (MOA & AOA), Board resolution for opening demat account and the list of authorised signatories along with their specimen signatures and photographs, etc. (2) Introduction by an existing account holder or by the applicant's bank. (3) Proof of address of the corporate, evidenced by the document registered with Registrar of Companies or acknowledged copy of Income Tax Return or Bank Statement or Leave and License Agreement/Agreement for sale. An authorised official of the Participant shall verify the proof of address with the original documents and affix his/her signature on the documents submitted by the Client, while exercising such due diligence. Common Information The process of opening an account with a depository, nature of such an account, and various factors to be considered for opening a depository account is explained below. Some details are common to all types of accounts. These are:

31 1. Name of the holder 2. Date of birth (for individual accounts) 3. Occupation 4. Address & phone/fax number 5. Bank details like name of bank, type of account (current/savings), account number, branch address, MICR. 6. PAN number 7. Details of nomination (for individual accounts only) 8. Specimen signatures 9. MAPIN UIN (s) 10. E-mail address 11. Mobile number 12. Address for communication 2. Clearing Member Account: The entities that are authorised to pay in and receive the pay out from a Clearing Corporation (CC)/ Clearing House against trades done by them or their clients are known as clearing members (CM). CMs are identified in the system through their CM-BP-ID. All pay-in and payout transactions are carried out through their accounts. There are two types of clearing members: 1. All members of a stock exchange popularly known as brokers are clearing members; 2. Custodians who are permitted by the stock exchange to act as a clearing member. Procedure to Open a Clearing Member Account The steps undertaken to open the account are same as those of individuals, difference lies in the type of form and details to be filled in and documents to be submitted. The only major difference is that the clearing member has to first register it with the clearing corporation and obtain a CCCM- ID. The clearing account is identified by the combination of CC-CM-ID given by the clearing corporation, CM-BP-ID given by the depository and the Client-ID given by the DP. Before opening a clearing account, the DP should send to the depository the clearing member's account opening form. The Depository then allots the CM-BP-ID. Based on the CM-BP-ID so allotted, the account gets activated. The DP then generates Client-ID and communicates the date of opening the account in DPM system to the depository. Details to be filled in the form are: 1. Name of the Clearing Member 2. Company's short name, if any

32 3. Address of the registered office, telephone number, fax number, e-mail, if any 4. Name and address of the authorised signatories, their designations and telephone numbers, status code, sub-status code 5. Bank account particulars, bank name and its branch, current account number, RBI reference number, RBI approval date, PAN/ GIR number 6. Signatures of Authorised signatory (ies) Details of Introducer - If an existing client has introduced a new client to the DP his signature is required on the form. In other cases, the DP may ask for details that it considers appropriate. A separate enclosure has to be attached to the account opening form specifying the following details: 1. Name and address of the clearing member 2. Name and address of the clearing corporation 3. Clearing Corporation Id (CC-ID) 4. Clearing Member Id (CM-ID) 5. Stock Exchange clearing code 6. SEBI Registration number 7. Trade name 8. Copy of Board Resolution for authorised signatories should also be submitted. Generally, there will be only one CM account per broker for a stock exchange. Checklist for a Clearing Member Account Ensure that all compulsory fields in the account opening form have been entered. Ensure that a copy of the board resolution for authorised signatories has been enclosed in case of corporate. Ensure that required letter from Stock Exchange giving CC-ID is enclosed. Ensure CM is informed of standing instruction facility for receipt. Ensure CM is informed that in case of delivery to CC instruction, either of the joint-holders can sign the instruction. If the forms are received at the branch of a DP, ensure that the account opening form along with required references is dispatched to head office in a proper and timely manner. If required, retain a copy. Ensure follow up with head office in case defined deadline in respect of account opening is not met. The clearing account should only be used for clearing and settlement purposes and not for any other purpose, e.g., holding of securities. All the securities received in a settlement account should be transferred to respective beneficial accounts as soon as possible, but in no case later than the time prescribed by the depository/ stock exchange/SEBI in this regard. The opening of clearing member account constitutes a "standing instruction" to receive credits from the clearing corporation when there is a pay-out.

33 Intermediary Account: An intermediary account can be opened by a SEBI registered intermediary for the purpose of stock lending and borrowing. The clearing member account and the intermediary account are transitory accounts. The securities in these accounts are held for a commercial purpose only.

Chapter- 3 Depositories Act, 1996

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Depositories Act, 1996

The Depositories Act, 1996 provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by (a) making securities freely transferable subject to certain exceptions; (b) dematerialization of the securities in the depository mode; and (c) providing for maintenance of ownership records in a book entry form. In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry. The Act has made the securities of all companies freely transferable in the depository mode, restricting the companys right to use discretion in effecting the transfer of securities. The other procedural and the transfer deed requirements stated in the Companies Act have also been dispensed with. Eligibility Criteria for a Depository Any of the following may promote a depository: 1. A public financial Institution as defined in section 4A of the Companies Act, 1956; 2. A bank included in the Second Schedule to the Reserve Bank of India Act, 1934; 3. A foreign bank operating in India with the approval of the Reserve Bank of India; 4. A recognised stock exchange; 5. An institution engaged in providing financial services where not less than 75% of the equity is held jointly or severally by these institutions; 6. A custodian of securities approved by Government of India, and 7. A foreign financial services institution approved by Government of India. The promoters of a depository are also known as its sponsors. A depository company must have a minimum net worth of Rs. 100 crore. The sponsor(s) of the depository have to hold at least 51% of the equity capital of the depository company. Participants of that depository, if any, can hold the balance of the equity capital. However, no single participant can hold, at any point of time, more than 5% of the equity capital. No foreign entity, individually or collectively either as a sponsor or as a DP, or as a sponsor and DP together, can hold more than 20% of the equity capital of the depository.

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Registration As per the provisions of the SEBI Act, a depository can deal in securities only after obtaining a certificate of registration from SEBI. The sponsors of the proposed depository should apply to SEBI for a certificate of registration in the prescribed form. On being satisfied with the eligibility parameters of a company to act as a depository, SEBI may grant a certificate of registration subject to certain conditions. Commencement of Business A depository that has obtained registration as stated above, can function only if it obtains a certificate of commencement of business from SEBI. A depository must apply for and obtain a certificate of commencement of business from SEBI within one year from the date of receiving the certificate of registration from SEBI. SEBI grants a certificate of commencement of business if it is satisfied that the depository has adequate systems and safeguards to prevent manipulation of records and transactions. SEBI takes into account all matters relevant to the efficient and orderly functioning of the depository. It particularly examines whether: 1. The depository has a net worth of not less than Rs. 100 crore; 2. The Bye-Laws of the depository have been approved by SEBI; 3. The automatic data processing systems of the depository have been protected against unauthorized access, alteration, destruction, disclosure or dissemination of records and data; 4. The network, through which continuous electronic means of communication are established between the depository, participants, issuers and issuers' agents, is secure against unauthorised entry or access. 5. The depository has established standard transmission and encryption formats for electronic communication of data between the depository, participants, issuers and issuers' agents; 6. The physical or electronic access to the premises, facilities, automatic data processing systems, data storage sites and facilities including back-up sites, and to the electronic data communication network connecting the DPs, issuers and issuers' agents is controlled, monitored and recorded;

36 7. The depository has a detailed operational manual explaining all aspects of its functioning, including the interface and method of transmission of information between the depository, issuers, issuers' agents, DPs and beneficial owners; 8. The depository has established adequate procedures and facilities to ensure that its records are protected against loss or destruction and arrangements have been made for maintaining back-up facilities at a location different from that of the depository; 9. The depository has made adequate arrangements including insurance for indemnifying the beneficial owners for any loss that may be caused to such beneficial owners by the wrongful act, negligence or default of the depository or its participants or of any employee of the depository or participant; 10. The granting of certificate of commencement of business is in the interest of investors in securities market. Agreement between Depository and Issuers If either the issuer (a company which has issued securities) or the investor opts to hold his securities in a demat form; the issuer enters into an agreement with the depository to enable the investors to dematerialise their securities. No such agreement is necessary where: i. Depository, is the issuer of securities, or; ii. The State or Central Government is the issuer of government securities. Where the issuer has appointed a registrar to the issue or share transfer, the depository enters into a tripartite agreement with the Issuer and Registrar & Transfer (R&T) Agent, as the case may be, for the securities declared eligible for dematerialisation. At present, NSDL is discharging the responsibility of R&T Agent for the securities issued by State and Central Governments. Rights and Obligations of Depositories Depositories have the rights and obligations conferred upon them under the Depositories Act, the regulations made under the Depositories Act, Bye-Laws approved by SEBI, and the agreements made with the participants, issuers and their R&T agents. Every depository must have adequate mechanisms for reviewing, monitoring and evaluating the depository's controls, systems, procedures and safeguards. It should conduct an annual inspection of these procedures and forward a copy of the inspection report to SEBI. The depository is also

37 required to ensure that the integrity of the automatic data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost, destroyed or tampered with. In the event of loss or destruction, sufficient back up of records should be available at a different place. Adequate measures should be taken, including insurance, to protect the interests of the beneficial owners against any risks. Every depository is required to extend all such co-operation to the beneficial owners, issuers, issuers' agents, custodians of securities, other depositories and clearing organisations, as is necessary for the effective, prompt and accurate clearance and settlement of securities transactions and conduct of business. The depository should indemnify beneficial owners of securities for any loss caused to them due to the negligence of the DP. However, where the loss is caused due to the negligence of a DP, the depository shall have the right to recover it from such DPs. LEGAL FRAMEWORK Introduction The depositories in India are regulated under the following legal framework: The Depositories Act, 1996 SEBI (Depositories and Participants) Regulations, 1996 Companies Act, 1956 Securities and Exchange Board of India Act, 1992 Prevention of Money Laundering Act, 2002 Apart from the above-mentioned Acts and Regulations, following govern the business and operations of a depository. Bye Laws of the depository Operating Instructions of the depository

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The Depositories Act, 1996 gives power to depositories to make bye-laws But such bye laws should be consistent with the provisions of this Act and the SEBI Regulations. Such bye-laws shall provide for: a) The eligibility criteria for admission and removal of securities in the depository; b) The conditions subject to which the securities shall be dealt with; c) The eligibility criteria for admission of any person as a participant; d) The manner and procedure for dematerialisation of securities; e) The procedure for transactions within the depository; f) The manner in which securities shall be dealt with or withdrawn from a depository; g) The procedure for ensuring safeguards to protect the interests of participants and beneficial owners;

39 h) The conditions of admission into and withdrawal from a participant by beneficial owner; i) The procedure for conveying information to the participants and beneficial owners on dividend declaration, shareholder meetings and other matters of interest to the beneficial owners; j) The manner of distribution of dividends, interest and monetary benefits received from the company among beneficial owners; k) The manner of creating pledge or hypothecation in respect of securities held with a depository; l) Inter rights and obligations among the depository, issuer, participants, and beneficial owners; m) The manner and the periodicity of furnishing information to the Board, issuer and other persons; n) The procedure for resolving disputes involving depository, issuer, company or a beneficial owner; o) The procedure for proceeding against the participant committing breach of the regulations and provisions for suspension and expulsion of participants from the depository and cancellation of agreements entered with the depository; p) The internal control standards including procedure for auditing, and monitoring. Reviewing SEBI (Depositories and Participants) Regulations, 1996 Board (SEBI) grants a certificate of registration to a depository subject to the following conditions, namely: a) The depository shall pay the registration fee specified within fifteen days of receipt of intimation from the Board; b) The depository shall comply with the provisions of the Act, the Depositories Ordinance, the bye-laws, agreements and these regulations; c) The depository shall not carryon any activity other than that of a depository unless the activity is incidental to the activity of the depository; d) the sponsor shall, at all times, hold at least fifty one per cent of the equity capital of the depository and the balance of the equity capital of the depository shall be held by its participants; e) No participant shall at any time, hold more than five per cent of the equity capital of the depository; f) If any information previously submitted by the depository or the sponsor to the Board is found to be false or misleading in any material particular, or if there is any change in such information, the depository shall forthwith inform the Board in writing;

40 g) The depository shall redress the grievances of the participants and the beneficial owners within thirty days of the date of receipt of any complaint from a Participant or a beneficial owner and keep the Board informed about the number and the nature of redressals: h) The depository shall make an application for commencement of business under regulation 14 within one year from the date of grant of certificate of registration under this regulation; and i) The depository shall amend its bye-laws as directed by SEBI. Certificate of Commencement of Business The Board shall take into account for considering grant of certificate of commencement of business, the following points, namely, whether a) The depository has a net worth of not less than rupees one hundred crore; b) The bye-laws of the depository have been approved by the Board; c) The automatic data processing systems of the depository have been protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data: d) the network through which continuous electronic means of communications are established between the depository, participants, issuers and issuers agents is secure against un-authorised entry or access; e) The depository has established standard transmission and encryption formats for electronic communications of data between the depository, participants, issuers and issuers agents; f) the physical or electronic access to the premises, facilities, automatic data processing systems, data storage sites and facilities including back up sites and facilities and to the electronic data communication network connecting the depository, participants, issuers and issuers agents is controlled, monitored and recorded; g) the depository has a detailed operations manual explaining all aspects of its functioning, including the interface and method of transmission of information between the depository,issuers, issuers agents, participants and beneficial owners; h) the depository has established adequate procedures and facilities to ensure that its records are protected against loss or destruction and arrangements have been made for maintaining back up facilities at a location different from that of the depository; i) the depository has made adequate arrangements including insurance for indemnifying the beneficial owners for any loss that may be caused to such beneficial owners by the wrongful act,

41 negligence or default of the depository participants or of any employee of the depository or participant; and j) The grant of certificate of commencement of business is in the interest of investors in the securities market. The Board shall, before granting a certificate of commencement of business makes a Physical verification of the infrastructure facilities and systems established by the Depository. Record of Services by Depository Participant (DP) i) Types of records Every participant shall maintain the following records and documents, namely: a) Records of all the transactions entered into with a depository and with a beneficial owner; b) Details of securities dematerialised, rematerialised on behalf of beneficial owners with whom it has entered into an agreement; c) Records of instructions received from beneficial owners and statements of account provided to beneficial owners; and d) Records of approval, notice, entry and cancellation of pledge or hypothecation, as the case may be. Every participant shall make available for the inspection of the depository in which it is a participant all records referred above. Every participant shall allow persons authorised by the depository in which it is a participant to enter its premises during normal office hours and inspect its records. Every participant shall intimate the Board the place where the records and documents are maintained. The participant shall preserve records and documents for a minimum period of five years. ii) Where records are kept electronically by the participant, it shall ensure that the integrity of the data processing systems is maintained at all times and take all precautions necessary to ensure that the records are not lost. Destroyed or tampered with and in the event of loss or destruction, ensure that sufficient back up of records is available at all times at a different place. iii) If a participant enters into an agreement with more than one depository, it shall maintain the specified records separately in respect of each depository. iv) No participant shall assign or delegate its functions as participant to any other person, without the prior approval of the depository.

42 Agreement by Issuer Every issuer whose securities have been declared as eligible to be held in dematerialised form in a depository shall enter into an agreement with the depository. Records to be maintained by Depository Every depository shall maintain the following records and documents, namely: a) Records of securities dematerialised and rematerialized; b) The names of the transferor, transferee, and the dates of transfer of securities; c) A register and an index of beneficial owners; d) Records of instructions received from and sent to participants, Issuers, issuers agents and beneficial owners; e) Records of approval, notice, entry and cancellation or pledge or hypothecation, as the case may be; f) Details of participants;

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Chapter -4 Depositories in India (NSDL&CDSL)

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DEPOSITORIES IN INDIA
There are two depositories in India at present i.e. 1. NSDL: National Securities Depository limited 2. CDSL: Central Depository Services (India) Limited National Securities Depository Limited In a span of about nine years, investors have switched over to electronic [demat] settlement and National Securities Depository Limited (NSDL) stands at the centre of this change. In order to provide quality service to the users of depository, NSDL launched a certification programme in depository operations in May 1999. This certification is conducted using NCFM infrastructure created by NSE and is called "NSDL - Depository Operations Module". The programme is aimed at certifying whether an individual has adequate knowledge of depository operations, to be able to service investors. Depository Participants are required to appoint at least one person who has qualified in the certification programme at each of their service centres. This handbook is meant to help the candidates in their preparation for the certification programme. National Securities Depository Limited is the first depository to be set-up in India. It was incorporated on December 12, 1995. The Industrial Development Bank of India (IDBI) - the largest development bank in India, Unit Trust of India (UTI) - the largest Indian mutual fund and the National Stock Exchange (NSE) - the largest stock exchange in India, sponsored the setting up of NSDL and subscribed to the initial capital. NSDL commenced operations on November 8, 1996. Ownership NSDL is a public limited company incorporated under the Companies Act, 1956. NSDL had a paid up equity capital of Rs. 105 crore. The paid up capital has been reduced to Rs. 80 crore since NSDL has bought back its shares of the face value of Rs. 25 crore in the year 2000. However, its net worth is above the Rs. 100 crore, as required by SEBI regulations. The following organisations are shareholders of NSDL as on March 31, 2005. 1. Industrial Development Bank of India 2. Administrator of the Specified Undertaking of the Unit Trust of India - DRF 3. National Stock Exchange 4. State Bank of India

46 5. Oriental Bank of Commerce 6. Citibank 7. Standard Chartered Bank 8. HDFC Bank Limited 9. The Hongkong and Shanghai Banking Corporation Limited 10. Deutsche Bank A.G. 11. Dena Bank 12. Canara Bank Management of NSDL NSDL is a public limited company managed by a professional Board of Directors. The day-today operations are conducted by the Chairman & Managing Director (CMD). To assist the CMD in his functions, the Board appoints an Executive Committee (EC) of not more than 15 members. The eligibility criteria and period of nomination, etc. are governed by the Bye-Laws of NSDL in this regard. Bye-Laws of NSDL Bye-Laws of National Securities Depository Limited have been framed under powers conferred under section 26 of the Depositories Act, 1996 and approved by Securities and Exchange Board of India. The Bye-Laws contain fourteen chapters Amendments to NSDL ByeLaws require the approval of the Board of Directors of NSDL and SEBI. NSDL performs the following functions through depository participants: 1. Enables the surrender and withdrawal of securities to and from the depository (dematerialisation and rematerialisation). 2. Maintains investor holdings in the electronic form. 3. Effects settlement of securities traded on the exchanges. 4. Carries out settlement of trades not done on the stock exchange (off-market trades). 5. Transfer of securities. 6. Pledging/hypothecation of dematerialised securities. 7. Electronic credit in public offerings of companies or corporate actions. 8. Receipt of non-cash corporate benefits like bonus rights, etc. in electronic form. 9. Stock Lending and Borrowing.

47 Services Offered by NSDL NSDL offers a host of services to the investors through its network of DPs: _ Maintenance of beneficiary holdings through DPs _ Dematerialisation _ Off-market Trades _ Settlement in dematerialised securities _ Receipt of allotment in the dematerialised form _ Distribution of corporate benefits _ Rematerialisation _ Pledging and hypothecation facilities _ Freezing/locking of investor's account _ Stock lending and borrowing facilities

Fee Structure of NSDL

NSDL charges the DPs and not the investors directly. These charges are fixed. The DPs in turn, are free to charge their clients, i.e., the investors for their services. Thus, there is a two tier fee structure. Charges NSDL provides depository services to investors and clearing members through market intermediaries called Depository Participants (DPs). NSDL does not charge the investors and clearing members directly but charges its DPs, who are free to have their own charge structure for their clients. NSDL charges to DPs are uniform for all DPs. Some charges are payable by Issuers also. FEE PAYABLE BY DEPOSITORY PARTICIPANTS ENTRY FEES Each Participant shall pay at the time of submitting its application to the Depository, a nonrefundable Entry Fee of Rs. 25,000. TRANSACTION RELATED FEES The following transaction related fees shall be payable by the Participants to the Depository: Settlement fee: 1.A settlement fee at the rate of Rs.4.50 per debit instruction in a Client's account shall be charged to the Participant of the Client. 2.A settlement fee at the rate of Re.1.00 per instruction in respect of securities received from the Clearing Corporation into the Pool account of each Clearing Member maintained with the Participant subject to a minimum of Rs. 1,000 and a maximum of Rs. 5,000 per quarter per CM Account shall be charged to the Participant. 3. A settlement fee at the rate of Rs.4.50 per debit instruction for transfer of securities by way of inter-settlement transfers in the CM Account(s) shall be charged to the Participant.

48 4. A settlement fee at the rate of Rs.4.50 per debit instruction for transfer of securities from the CM account of a Clearing Member to the CM account of another Clearing Member shall be charged to the Participant of the delivering Clearing Member. Provided further that no settlement fee shall be charged: In respect of commercial papers and short term debt instruments such as certificate of deposits, MIBOR linked papers etc.; and In case of: 1. Transfers necessitated by transmission on death of the Client; and 2. Transfer of the accounts of Clients from one Participant to another as a consequence of expulsion or suspension of such Participant. FEE FOR DEMATERIALISATION & REMATERIALISATION No fee shall be charged by the depository for dematerialisation of securities. Participant shall be charged the following fee for rematerialisation of securities: 1. a fee of Rs.10 for every hundred securities or part thereof ; or 2. a flat fee of Rs.10 per certificate, whichever is higher. No rematerialisation fee shall be charged for Government Securities. FEE PAYABLE BY ISSUERS:Nominal Value Of Securities Admitted (Rs.) Amount (Rs.) Upto 5 crore Above 5 crore and upto 10 crore Above 10 crore and upto 20 crore Above 20 crore 6,000 15,000 30,000 50,000

ANNUAL CUSTODY FEE 1.An Issuer of listed securities shall pay an annual custody fee at the rate of Rs. 8 per folio (ISIN position) in NSDL, subject to a minimum amount as mentioned below, plus service tax as applicable:

2.The above fee would be applicable on all securities i.e. equity, debt, units of mutual funds, pass through certificates, certificates of deposit, commercial papers, preference shares etc., except Government securities.

49 3. The fee will be based on average number of folios (ISIN positions) during the previous financial year. Average number of folios (ISIN positions) will be arrived at by dividing the total number of folios (ISIN positions) for the entire previous financial year by the total number of working days in the said previous financial year provided however that, in case the issued capital or ISIN positions increase during the financial year due to issue of further shares, by way of public offer, the custody fee would be charged on a pro-rata basis, at the time of such issue. The fee will be charged every year on a financial year basis and shall be payable by April 30 of that financial year If an Issuer fails to pay the fees mentioned under "Annual Custody Fee" by the due date, the Depository may charge interest @ 12% p.a. on the amount, from the due date of payment till the payment is received by the Depository. Provided further that the Depository may stop providing details of clients / clearing members / clearing corporation / intermediary to the Issuer and / or its Registrar and Transfer Agent as mentioned in the Bye Laws and Business Rules, provided further that the Depository may not permit the Issuer to use its infrastructure including for issue of further securities in electronic form. JOINING FEE BY ISSUERS: An issuer of unlisted securities shall pay a joining fee of Rs. 20,000 plus taxes at the applicable rate at the time of joining NSDL, for the purpose of making its shares available for dematerialization. Inspection, Accounting and Internal Audit:-NSDL obtains audited financial reports from all its DPs once every year. NSDL also carries out periodic visits to the offices of its constituents R&T agents, DPs and clearing corporations to review the operating procedures, systems maintenance and compliance with the Bye-Laws, Business Rules and SEBI Regulations. Additionally, DPs are required to submit to NSDL, internal audit reports every quarter. Internal audit has to be conducted by a chartered accountant or a company secretary in practice. The Board of Directors appoints a Disciplinary Action Committee (DAC) to deal with any matter relating to DPs clients, Issuers and R&T agents. The DAC is empowered to suspend or expel a DP, declare a security as ineligible on the NSDL system, freeze a DP account and conduct inspection or call for records and issue notices. If a DP is aggrieved by the action of the DAC, it has the right to appeal to the EC against the action of the DAC. This has to be done within 30 days of the action by DAC. The EC has to hear the appeal within two months from the date of filing the appeal. The EC has the power to stay the operation of the orders passed by the DAC. The information on all such actions has to be furnished to SEBI. Central Depositary Securities Limited A Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a demat account through any DP for dematerialisation of his holdings and transferring securities. The balances in the investors account recorded and maintained with CDSL can be obtained through the DP. The DP is required to provide the investor, at regular intervals, a statement of account which gives the details of the securities holdings and transactions. The depository system has effectively eliminated paper-based certificates which were prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous transfer of

50 securities. CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion Bank. CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. Some of the important milestones of CDSL system are: CDSL received the certificate of commencement of business from SEBI in February, 1999 1) Honorable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on july 15, 1999. 2) Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing house of BSE, started in july 1999. 3) All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi stock Exchange; The Stock Exchange, Ahmedabad, etc have established connectivity with CDSL. 4) As at the end of Dec 2007, over 5000 issuers have admitted their securities (equities, bonds, debentures, commercial papers), units of mutual funds, certificate of deposits etc. into the CDSL system. Shareholders of CDSL CDSL was promoted by Bombay Stock Exchange Limited (BSE) in association with Bank of India, Bank of Baroda, State Bank of India and HDFC Bank. BSE has been involved with this venture right from the inception and has contributed overwhelmingly to the fruition of the project. The initial capital of the company is Rs.104.50 crores. The list of shareholders with effect from 11th December, 2008 is as under. A professional Board of Directors with vast and varied experience in capital markets and banking is at the helm of affairs at CDSL. Board of Directors Mr. S S Thakur Mr. V V Raut Mr. P S Reddy Mr. M. R. Mayya Mr. Madhu Kannan Mr. L. P. Aggarwal Mr. Prakash R. Kacholia Mr. Anjan Barua Mr. A. D. M. Chavali Mr. A. R. Kuppuswamy Chairman Managing Director and Chief Executive Officer Executive Director Independent Director Sponsor Director Bombay Stock Exchange Limited Sponsor Director Bombay Stock Exchange Limited Sponsor Director Bombay Stock Exchange Limited Sponsor Director - State Bank of India Sponsor Director - Bank of Baroda Sponsor Director - Bank of India

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FEE STRUCTURE OF CDSL CDSL fees structure to its depository participants is as follows: SR.NO. Details of Charges CDSL 1 Account Opening Charges NIL 2 Account Maintenance NIL for individuals Charges Rs.500/- p.a. to Corporates 3 Transaction Charges Rs.6/- ** Market & Off-Market 4 Transaction Charges Flat charge of Rs.500/- per month on CM accounts Clearing Member Accounts for pay-in and pay-outs received from CH 5 Custody Charges NIL 6 Demat Charges NIL 7 Remat Charges Rs.10/- per 100 securities or part quantity or Rs. 10/- per cert. whichever is higher. 8 Pledge/Hypothecation Pledge acceptance - Rs.12/- per request. Charges Unpledge acceptance - Rs.12/- per request. Pledge Invocation Acceptance Nil 9 Internet Facility 'easi' Rs.20,000/- one time for registration 10 Internet Facility 'easiest' Rs.30,000/- one time for registration Rs.1,150/-p.a. for renewal of digital signature Monthly charges for DPs or its branches w.e.f. 1st May, 2006 For Main DPs: Rs.3,000/- per month or the amount of the actual bill for a given month whichever is higher. For DP-Branches: Rs.2,000/- per month or the amount of the actual bill for a given month whichever is higher. Fees for Clearing Members CDSL collects only Rs. 500/ - per month from its DPs for a CM except for CM Investors Securities Account. The following tariff structure will be effective from Wednesday, April 01, 2009.

52 Monthly Transaction bill amount (@Rs.6/-per transaction) (in Rs.) More than Rs.15 lakhs More than Rs.4 lakhs and upto Rs.15 lakhs More than Rs.1 lakh and upto Rs.4 lakhs Upto Rs.1 lakh Rate per Debit Transaction (in Rs.) 4.75 5.00 5.50 6.00

Benefits of opening an account with CDSL system 1) The unique centralized database of CDSL enables DPs to debit / credit securities instantaneously to the Beneficial Owners account thereby avoiding any transit position. 2) CDSLs unique client ID number ensures debit / credit of securities only to the intended account, as the system does not accept a transaction, where account number is keyed in incorrectly. 3) CDSL offers a facility to the clearing House / Clearing Corporation under which securities sold purchased by any BO on BSE can be directly delivered from / received in the BO account without routing them through the brokers pool account. 4) CDSL does not collect any custody fees from its DPs. Thus BOs can except a lower charge in respect of securities held in CDSL accounts. The transaction cost of settlement of securities through CDSL is lower in most cases. NSDL and CDSL essentially perform the following functions through their various participants: 1. Enable surrender and withdrawal of securities to and from the depository. 2. Maintain investor holdings in the electronic form. 3. Effect settlement of securities traded on the Exchanges. 4. Carry out settlement of trades not done on the Stock Exchanges i.e. Off Market Trades 5. Coordination of benefits accruing on the depository accounts of investors

Chapter-5 Research Methodology

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The data has been collected both from primary and secondary source, which includes website of NSDL (www.nsdl.co.in) and CDSL (www.cdsl.ac.in), website of Indian central depository system (CDS), published reports of NSDL and Govt. of India, Depository Act-1996, SEBI Act1992, and various working group reports published by SEBI on Depository and Capital Market Services, published books and printed material on financial services or Intermediaries. Primary Data was collected from DPs through questionnaire. OBJECTIVES OF THE STUDY 1. To understand the basic term and process in depositary system. 2. Get specific knowledge about NSDL and CSDL and its investor. 3. Provide educate and desirable information for the readers. 4. Getting the information about the awareness of depository system. The scope of the study is:-a) limited to Depositories and its profitability during the study period. Need OF THE STUDY: Because of some reason need of depositories arises and these reasons are:-

54 1. Because of significant growth in financial market worldwide, over which mostly driven globalization, technology innovation and high trade volume. 2. To solve the problem of Intrinsic nature of paper based trading and settlement. 3. Solve the problem of loss of share certificate 4. To reduce the paper leading cost and work is done with greater efficiency 5. The cost and time spent by the brokers for rectification of these bad deliveries tends to be higher with the geographical spread of the clients. Method of Data Collection PRIMARY SOURCE: I have gathered information about our project from the interaction with the Clients of our organization i.e. Ludhiana Stock Exchange. The sampling method used was basically convenience sampling. SECONDARY DATA: The secondary data, I have collected from the various websites of NSEINDIA, NSDL, CDSL, SEBI and Ludhiana Stock exchange various journals, magazines. RESEARCH DESIGN For the proper analysis of data simple quantitative technique such as percentage were used. It help in marketing more accurate generalization from the data available .The data which was collected from a sample of population was assumed to be representing entire population was interested .

Analysis & Interpretation

Table No 1:Depository Participant in Depository system Name of the depository Number of Participant NSDL CDSL Total 287 625 912 Percentage of DPs 31.46% 68.53% 100%

Analysis &Interpretation The table no1 show that the majority of the participants are inclined towards CDSL which clearly shows that 68.53% of the participants are with the CDSL and 31.46% are with the NSDL. This Pie chart helps me to define easily that the NSDL and CDSL are the main depository in India and also CDSL having a larger DPs as compared to NSDL.

Table-2 Duration of holding and trading in securities (in years)

55 The purpose of this question is to determine how long the investor has been investing in securities.
Male investors Time (In years) Below 5 years 5-10 years 10-15 years Above 15 years Total Frequency 8 5 2 0 15 Percentage 53.333 33.333 13.333 0 100 4 6 0 0 10 Female investors Frequency Percentage 40 60 0 0 100

Graph-1 (Shows the percentage of respondents holding and trading in securities) Analysis and Interpretation: from above table and graph it is clear that 53.33% of males and 40% of females are trading in security market for a period of less than 5 years and no female is trading for a period more than 10 years. This shows that females have recently developed knowledge, skills and confidence required for starting trading in stock market as compared to males who were trading in stock market for more than decade. Table-3 Shows the frequency and percentage of usual modes of trading used by different respondents The purpose of this statement is to know about the respondents preference regarding mode of trading.
Male Modes of trading Online trading Trading through broker Both Total Frequency 6 6 3 15 Percentage 40 40 20 100 Female Frequency 2 6 2 10 Percentage 20 60 20 100

Graph-3

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Analysis and Interpretation: from the above table and graph it is clear that the number of males using online trading mode, trading through brokers and both, is 40%, 40% & 20% respectively. While in case of females, in the investors using online trading mode, trading through brokers, and both, which is 20%, 60% 20% respectively. This shows that each mode of trading has its relative advantages and disadvantages. No method of trading is absolutely perfect. Choice of the method depends on the personal choice and convenience of investor. Table 4 Different areas of investment in securities market The purpose of this statement is to know about respondents preference regarding different securities in which he/she wants to invest.
Male Percentage 4 0 11 15 40 0 60 100 Female Frequency Percentage 3 0 7 10 30 0 70 100

Area of investment Mutual funds Government bonds Equity shares Total

Frequency

Graph-4

Analysis and Interpretation: from above table and graph it is clear that majority of males and females investors invest in equity shares (73.33% in case of males and 70% in case of females). Hence it is clear that equity shares are most preferred source of investment as compared to mutual funds and government bonds. Table-5 Factors important for a trading company to enhance the loyalty of its customers The purpose of this statement is to know about factors, which according to the respondents, must be present in a depositary participant to enhance their loyalty.

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Male Factors Provides maximum profit Provides tips from time to time No hidden charges Promptness of service Total Frequency 6 2 3 4 15 Percentage 40 13.333 20 26.666 100 4 2 1 3 10 Female Frequency Percentage 40 20 10 30 100

Graph-5

Analysis and interpretation: from above table and graph it is clear that 40% of male investors and 40% of female investors prefer a depositary participant which provides the maximum profit. This shows that most of the investors consider providing maximum profits as the major criteria while selecting a depository participant.

Table-6 Time duration in which depository participant contacts its customers The purpose of this statement is to know that how frequently a depository participant contacts its customers.
Male Duration Daily Weekly Monthly Yearly Never Total Frequency 0 8 3 4 0 15 Percentage 0 53.333 20 26.666 0 100 Female Frequency 0 5 2 3 0 10 Percentage 0 50 20 30 0 100

Graph-6

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Analysis and interpretation: from above table and graph it is clear that most of the depositary participants contact their customers. This shows that depository system is very efficient and depository participants contact their customers regularly.

Table-7 Reasonability of service charges of DEMAT a/c The purpose of this statement is to find out the fraction of the customers that regard the service charges of a DEMAT a/c as reasonable.
Do you find the DEMAT service charges reasonable? Yes No Total Frequency Percentage

24 1 25

0.96 0.04 100

Graph-7

Analysis and interpretation: Almost all the respondents (96%) find service charges levied by the depository participant as reasonable. This shows that service charges levied are fair and reasonable.

Table no 8: Sufficient knowledge and awareness about NSDL or CSDL The purpose is known the general awareness and knowledge about Depository system to the investors of India.

59 Knowledge about NSDL&CDSL Yes No To some extent Total Percen tage 76 8 16 100

Frequency 19 2 4 25

Graph 8

Analysis and interpretation: this shows that only 19 respondents have a sufficient knowledge about CSDL and NSDL it means most of respondent have a no or only little bit knowledge about these two terms data says that 2 respondents go with no and 4 go with to some extent which analyse that it is very much important for having a knowledge bout NSDL and CDSL so that investors protect himself from mistakes. Table -9 Statement No.9.-Personal details: (Table-9)

Demographics

Number of Respondents

Percentage of Respondents

Gender: Male Female TOTAL Education qualification: Under graduate Graduate Post graduate TOTAL Age group (in years): 18-30 30-40

15 10 25 0 2 23 25 6 9

60 40 100 0 8 92 100 24 36

60 40-50 Above 50 TOTAL 10 0 25 40 0 100

Analysis and Interpretation: from demographic profile it is clear that 60% of the respondents are male and 40% respondents are female. Most of the respondents are post graduate (92%) and most of them are between age group of 40-50, that is 40%. Hence it shows that most of the respondents are educated and have very much experience in stock market.

FINDING

To study the above Table, Graphs and pie charts I observe that the most of the people of Mandi and Ludhiana have knowledge about depository s ystem but they have not a proper and basic knowledge about this vast concept only limited information is there.

On the basis of my research finding are:1. Most of the respondents (53.333%) are trading for less than five less than five years. 2. Most of the DEMAT a/c holders use both the modes of trading (i.e. - online trading and trading through broker). 3. Most of the investors likely to invest in equity shares. 4. Most of respondents affirm that they will choose a depositary participant which provides them maximum profits. 5. Most of the depository participants contact their customers weekly. 6. Almost all the respondents (96%) are satisfied with the service charges. 7. There is more number of male respondents (60%) as compare to female respondents (40%)

61 8. The educational statuses of most of the respondents who hold a DEMAT a/c are post graduate (92%). 9. Most of respondents are between age group of 40-50, that is 40%. 10. The majority of the participants are inclined towards CDSL which clearly shows that 68.53% of the participants are with the CDSL and 31.46% are with the NSDL. These are the finding helps me in knowing that, investors are now a days having knowledge about Depository system in India.

Recommendation
1. Regular statements of holdings should be made available at regular intervals. 2. Awareness of functioning of this system should be spread to the public through advertisement. 3. Proper feedback should be taken into consideration. For e.g. calls should be made when the account is opened. 4. Bank should expand its network by opening its more branches and franchise and there should be easy accessibility of services rendered by a system. 5. The processing of the demat account opening should be made fast. 6. The e-broking service should be introduced. 7. Customers should be made aware about the services like phone banking, net banking, bill pay, dematerialization etc. an instruction manual telling about how to use their services can also be given to the customer to make these advanced services more popular. 8. Paper work is going to be less but it is very complicated to maintain data in system so try to reduce that by regular audit and updating data 9. To handle the high workload of transactions full infrastructure information to every DP can be provided which can solve the problem of those Depositories which has not good infrastructure. 10. The pool a/c does not know the true owner of the shares and hence dividends are paid to the broker instead of owners, by this broker can do any manipulations or any fraud with the owner, for this the owner can lose his dividend. Hence for this try to pay the Dividend directly to the owner. 11. If the shares are forged which delivered by the broker the shareholder can lose that system and have to receive another lot of issued shares from the broker in 21 days, this system stands abused as soon as possible. 12. The online trading is easy to work but it is costly to maintain and difficult to learn. 13. Stock exchanges are conducting classes on the awareness of the depository system of NSDL and CDSL. Information about the classes must be given news papers and media and also seminars also be provided in the colleges and other institute.

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Conclusion
The Indian system of capital market is a Two Tire System. Indian government allows holding securities in any form i.e. either in physical securities or in electronic (demat) form. The investors rarely utilize the Rematerialisation Request Form. Investors are not aware about the services offered by depositories. Most of the speculators do not utilize demat account in dayto-day online trading. In Earlier days, there are so many problems like lost and theft of share certificate and Intrinsic nature of paper based trading and settlement, this problem increases because of significant growth in financial market worldwide. To solve these problem and work done with greater efficiency Depository system is come into existence. The cost and time spent by the brokers for rectification of these bad deliveries tends to be higher with the geographical spread of the clients. The increase in trade volumes lead to exponential rise in the back office operations thus limiting the growth potential of the broking members. It is to be concluded that, the research findings clearly reveal the goodwill and reputation of depository system among the customers. But there is a need to strengthen this depository system by spreading awareness about the services offered by NSDL, CSDL and its trading companies through advertisement and by expanding the more branches of this system all over the country and also by tapping the potential customers through innovative means.

Bibliography http://lse.co.in/Static/AbtUs.aspx https://nsdl.co.in/about/index.php https://nsdl.co.in/joining/depelig.php https://nsdl.co.in/joining/depprocd.php http://www.cdslindia.com/cds_assoc/dpintroduction.htm http://www.sebi.gov.in/sebiweb/ www.cdslindia.com/downloads/.../BCCD-Book-JUNE-10.pdf www.sebi.gov.in/acts/act03a.pdf http://demataccount.com/

63 http://demataccount.com/bank-stock-shares-rematerialisation/ Referred books: 1. International Journal of Scientific and Research Publications, Volume 2, Issue 2, February 2012 2. F-86-10 NSDL Handbook -I to IV_3rd proof

Annexure APPLICATION FORM FOR OPENING AN ACCOUNT For Individuals Only For Corporate/Clearing Members only APPLICATION FORM FOR CLOSING AN ACCOUNT

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68 APPLICATION Form FOR OPENING AN ACCOUNT (For Corporates/Clearing Members only)

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Application for closing an Account

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