NAME

:
SAMARTH S KUMAR
ROLL NO
:
1411005600
SEM
:
4TH
SUB CODE :
MF0017
SUB NAME :
MERCHANT BANKING & FINANCIAL SERVICES
DRIVE
:
FALL 2016
--------------------------------------------------------------------------------------------------------------------------------------------

Q1
Rating methodology is used by the major Indian credit rating agencies. Explain
the main factors of that are analysed in detail by the credit rating agencies.
Ans:- Rating Methodology
Rating methodology used by the major Indian credit rating agencies is more or less the same.
The rating methodology involves an assessment of all the aspects influencing the
creditworthiness of an issuer company e.g. business, financial and industry features, operational
competence, the ability to manage, competitive position of the issuer and dedication to new
ventures among others. A thorough analysis of the past financial statements is made to evaluate
the performance and to anticipate the future earnings. The ability of the company to fulfill the
debt obligations over the term of the instrument being rated is also assessed. As a matter of
fact, it is the capability of the issuer to fulfill obligations that determine the rating. While
assessing the instrument, the following are the main factors that are analysed in detail by the
credit rating agencies:(i) Business risk analysis(ii) Financial analysis(iii) Management
evaluation(iv) Geographical analysis(v) Regulatory and competitive environment(vi)
Fundamental analysis These are explained as follows:
(a) Business risk analysis: Business risk analysis focuses on analysing the industry hazards,
market position of the company, operating competence and legal position of the company. The
industry risk by taking into consideration various factors like strength of the industry prospect,
nature and basis of competition, demand and supply position, structure of industry, pattern of
business cycle etc. How the industry players are competing with each other on the basis of
price, product quality, distribution capabilities etc are also analysed. Industries with stable
growth in demand and flexibility in the timing of capital outlays are in a stronger position and,
therefore, enjoy better credit rating. For example, a seasonal business like hiring of vacation
cottages or firms making winter clothes line.
(ii)Financial analysis: Financial analysis aims at determining the financial strength of the issuer
company through ratio analysis, cash flow analysis and study of the existing capital structure.
The analytical framework involves the analysis of business risk, technology risk, operational
risk, industry risk, market risk, financial risk and management risk. Business risk analysis covers
industry analysis, operating efficiency, market position of the company whereas financial
risk covers accounting quality, existing financial position, cash flows and financial flexibility.
Under management risk analysis, an assessment is made of the competence and risk appetite of the
management. The CRA might also look at the sufficiency of other means of servicing debt in case
the primary cash flows are insufficient: for instance, in a securitized instrument, the credit
enhancement and structure will be examined, while in case of a guaranteed bond the credit
strength of the guarantor could drive the rating.
(iii)Management evaluation: A companys performance is largely influenced by the aims
and objectives of the management, its plans and policies, ability to prevail over adverse
conditions, employees experience and skills, planning and control system among others. The
managements strong points and weak points are evaluated for rating a debt instrument. For

example, if the vision of the management is not clear about the big picture of the firm at least
five to fifteen years down the line, then the companys focus may not be in proper place and the
performance will not be as per the expected level. Any companys performance is significantly
affected by the management goals, plans and strategies, capacity to overcome unfavourable
conditions, staffs own experience and skills, planning and control system etc. Rating exercise
requires evaluation of the management strengths and weaknesses.
(iv) Geographical analysis: Geographical analysis facilitates in ascertaining the locational
advantages enjoyed by the issuer company. An issuer company whose business covers a large
geographical region avail the advantage of diversification and as a result, gets an improved
credit rating. A company located in a backward area may avail subsidies from the government
and, hence have the advantage of lower cost of operation. Smaller companies operations are
limited in terms of product, geographical area and the number of customers. However, large
companies enjoy the benefits of diversification owing to wide range of products and customers
spread over larger geographical area. For example, a local shoe manufacturer has an exposure
to a smaller market whereas a national level shoemaker has a wider reach to customer with
better distribution system in place.
(v) Regulatory and competitive environment: Credit rating agencies assess the composition
and regulatory structure of the financial system in which it operates. CRAs have to assess the
bearing of regulation/ deregulation on the issuer company, while allotting rating symbols.
(vi) Fundamental analysis: Fundamental analysis includes an analysis of liquidity
management, profitability and financial position, interest and tax rates sensitivity of the
company. This includes an analysis of liquidity management, profitability and financial position,
interest and tax rates sensitivity of the company. Fundamental analysis is undertaken for rating
debt instruments of financial institutions, banks and non-banking finance companies.
Q.2 Give the meaning of the concept of venture capital funds. Explain the feature of
venture capital fund.
Ans:- Concept of Venture Capital Funds:Venture capital is the money provided by investors to start firms and small businesses with longterm growth potential. This isa very important source of funding for start-ups that do not have
access to capital markets. It typically entails high risk for the investor, but it has the potential for
above-average returns. Venture capital can be defined as investment (long term) which is made
in:
Ventures that are promoted by persons who though they are qualified and technically sound
but do not have any entrepreneurial experience.
Projects which involves high degree of risk.
The concept of venture capital financing is very old but todays changing business environment
makes it more tempting for businesses. The reason being, venture capital companies give risky
capital to the entrepreneur so that they can meet the minimum requirements of the promoters
contribution. Venture capitalists not only provide the finance for risky business but also provide
value- added services and business and managerial support. In situations where firms are not
able to raise finance by conventional means, like public issue, etc., the importance of venture
capital is greater. Thus, we can say that venture capital institutions are financial intermediaries
between the entrepreneurs who need institutional capital (as they are not ready for public
finance) and investors who are looking for higher returns.
Features of a Venture Capital Fund:As venture capital is provided for businesses which involve higher risk and also a higher rate
of return, it has some specific features. These are:

(i) Long-term investment: Venture capital is provided for the long term. This is generally
provided to high-risk businesses (small and medium enterprises) who cannot arrange funds
from other sources of finance. Venture capital is for that project which starts earning returns
after some time. Due to all these reasons, venture capital is provided for the long term.
(ii) Participation in equity capital: Venture capital is always invested in equity capital (actual
or potential). The reason for this is that the venture capitalist can sell his part of equity when
they start earning profit from their equity holding. In the beginning, the equity capital of new
ventures is risky but when they start earning profits and the market gains confidence in them,
the venture capitalist can sell his portion of equity capital at a profit.
(iii) High risk: Venture capital signifies equity investment (ownership participation) in highly
risky projects which have growth prospective and a projected high rate of return. Projects, in
which markets have no earlier experience of earning profits, are the target of the venture
capitalists.
(iv) Management participation: Venture capital funds not only provide equity capital to the
firms or businesses but also provide them with various kinds of services like participation in
management of the assisted business. Due to this reason they are different from bankers. They
are not like other stock market investors who do not participate in the management of
companies but invest and trade in shares in the stock market. In this way, venture capital is
different from investors (equity) also. Moreover, it is the combination of bankers, stock market
investors and entrepreneurs.
(v) Liquid investment: Investment made by venture capital fund is in equity portion of the
company which makes it less liquid. Funds cannot demand its money back anytime during the
life of the assisted business. They get their money back when the assisted business goes into
liquidation.
(vi) Fulfils its social objectives: Unlike several state and central-level government
organizations, venture capitalists provide finance with profit as their main objective. But venture
capital funds help in generating new employment opportunities and also help in the balanced
growth of the economy by the development of new and innovative business.
(vii) Large scope of venture capital activities:
Venture capital is not merely a means for financing technology. It is beyond financing new
technology- oriented companies and businesses. It extends to involve the financing of small and
medium enterprises at their early stages of business and helps them establish in the market.
So, it can be said that the scope of venture capital activities is big.
Q.3 Hire purchase is one of the important concept There are certain features of hire
purchase agreement so explain the points of it. Differentiate between hire purchase and
leasing.
Ans:- Concept of Hire Purchase
In a hire purchase system, the buyer acquires the property by promising to pay in monthly,
quarterly and half-yearly installments. The period of payment has to be fixed while signing the
hire sale agreement. Though the buyer acquires the asset after signing the agreement, the title
of ownership remains with the vendor until the buyer pays the entire liability. When the buyer
pays the entire installment and any other obligation according to hire purchase agreement, only
then the title of ownership of goods would be transferred to the hirer. If the hirer makes any
default in the payment of any installment, the hire vendor has the right to re- posses the goods.
In this case, the amount that is already paid so far by the hirer will be forfeited. The hire
purchase price of goods is normally higher than the cash price of the good, because it includes
interest on the balance payable amount charged by the vendor as well as the cash price. Under
this system, the vendor is responsible to repair the goods which are in possession of buyer
provided that the buyer takes the utmost proper care of the goods acquired. The risk is also

borne by the vendor until the payment of last installment. The buyer has the right to return the
goods to the vendor, if they are not according to the terms and condition of the hire purchase
agreement. Generally, a higher purchase agreement has the following features:1.
The buyer (hirer) buys some goods from the hiree and the possession of the goods is
immediately given to the buyer while the ownership rests with the merchant (vendor).2.
This payment for goods is made in installments and this must be completed in a specific period
of time. In other words, we can say that hire purchase agreement is for a specific period of
time.3.
The ownership of the asset transfer to the buyer when he pays the last instalment for it; till then
ownership lies with the merchant or vendor.4.
In this agreement hiree charges interest on flat rate.5.
The hiree or vender has the right to repossess the asset in case there is default in the payment
of installments from buyer side.6.
Each instalment paid by buyer includes the amount of interest as well as the repayment of the
loan amount or principalamount.7.
The hire purchaser generally makes a down payment (initial payment) in signing the agreement
and the balance of the amount along with the interest is paid in the installments at regular
intervals.8.
The hire purchaser has the right to terminate the agreement at any time before the property so
passes. The preceding discussion makes it clear that in the case of hire purchase, goods are
immediately given to the buyer on the promise that he pays the cost of the goods (with interest)
in instalments and he gets the ownership of the goods after the last payment of installment till
then ownership lies with vendor. In hire purchase arrangement there are two parties: the
buyer(hirer) and the vendor (hiree).
Difference between Hire Purchase and Leasing
1. Ownership In leasing ownership is never transfer to the lessee even after the payment of last lea
se rentals.But in hire purchase, after the payment of last installment ownership is
transferred to the buyer of the goods
2.
Repayment
amount

Generally in lease, repayment is called lease rentals and that in case of hire purchase
is called installments

3. Advantage
of tax
deductibility

in lease financing lease rentals are tax deductible expenses. However, in hire
purchase arrangement only the amount of interest is tax deductible not the full
installment.

4.
Depreciation

Lessee cannot claim depreciation as he is not the owner of the asset. In hire
purchase the buyer can have the claim of depreciation with other expenses

5. Realization Lessee cannot realize salvage value of the leased asset after the end of the lease
of salvage
contract. The hirer can claim salvage value
value
6. Magnitude
of funds
involved

In leasing, magnitude of funds involved is very large because these contracts are
generally for capital goods such as plant and machinery, ships, among others. In the
case of hire purchase, the magnitude of funds involved is low. Generally, these
contracts are for the purchase of office equipments, automobiles, furniture among
others

7. Nature of
Expenditure

In lease, rentals paid by the lessee are entirely revenue expenditure of the lessee.
But, only interest element included in the HP installment is revenue expenditure.

8.
Components

Lease rental comprises two elements: (1) finance charge and (2) capital recovery. In
case of Hire Purchase, HP installments comprise three elements (1) normal trading
profit (2) finance charge and (3) recovery of cost goods/assets

------------------------------------------------------------------------------------------------------------------------------Q.4 Explain the concept of Depository receipt. Write down the difference between
American Depository Receipts(ADR) and Global Depository Receipts (GDR) also
mention the issue involved in ADR/GDR.
Ans:- Depository Receipts
Depository receipts are securities that are traded in foreign currency. These receipts are issued
by the foreign bank or institution which acts as a depository of shares issued by a domestic
company. Depository receipts can be classified into sponsored and unsponsored ones.
1. Sponsored depository receipts:
It is created by a single depository which is appointed by the issuing company under rules
provided in a deposit agreement. The issues of sponsored ADR/GDR require prior approval of
the Ministry of Finance.
2. Unsponsored depository receipts:
These are issued without any formal agreement between the issuing company and the
depository, although the issuing company must consent to the creation of the ADR/GDR facility.
How does the depository work?
If an Indian company wants to raise funds from the investors in the United States it will have to
list itself in the US Stock Exchange (NASDAQ). Since the shares are in the denomination of
Indian rupees, these are not directly listed on the stock exchange of USA, hence, the depository
works as an intermediary. Here the Indian company releases and deposits the new shares with
the depository. The depository in turn issues the depository receipts to the investors in the US. A
depository in the US generally will be an investment bank registered with the Securities and
Exchange Commission (SEC).As Securities and Exchange Board of India (SEBI) is the
capital market regulator in India, SEC is in the US. The depository will have a custodian in India

where the new shares are deposited. The custodian can be the Indian arm of the depository or
an independent company which provides the related services to the US-based depository.
Depository receipts can be of two forms

Global Depository Receipts (GDRs) and American Depository Receipts (ADRs).GDRs are
usually listed on a European stock exchange and ADRs on the US stock exchange. In case of
issue of a depository receipt by the Indian company, the dividend payment to the investor is
made in terms of Indian rupee, which is converted into dollars by the international depository,
after deduction of withholding tax. If a company wants to issue depository receipts, it has to
conform to the following regulations:
A resolution needs to be passed in the board meeting of the company for any such issue
and file the same with the Registrar of Companies in Form No.23.
Approval must be obtained from the Ministry of Finance.
Ministry of Finance specifies the price range.
Final price is determined only at the last stage.
A red-herring prospectus is issued by the company without specifying the price (a blank
column is left for the same).
Underwriter of the issue takes care of the marketing of issue.
The company issues the shares to the depository but these are delivered to the custodian
Difference between ADRs and GDRs:The following are the main points of difference between ADRs and GDRs.
(i) The ADRs are issued by the companies to raise funds from the US markets and GDRs are issued by the
companies to raise funds from international markets.(ii) Even though both are negotiable
instruments, ADRs are negotiable in the US markets only and GDRs are negotiable in
international markets.(iii) The GDRs can be used as a substitute of ADRs, but ADRs cannot be
substituted for GDRs.(iv)n Companies prefer to issue GDRs in comparison to ADRs due to
wider scope to access the international markets by GDRs.(v) ADRs are found in three forms
from level-I to level-III, but GDRs are already called in high preference receipt of level-II and
level-III.
Parties involved in ADR/GDR issues:ADR/GDR issue involves various parties who have some specific role to play in the global
issue. These parties can be a single individual or a group of individuals and ingenuous
endeavors are required from them to make a global issue successful.
(I) Issuer company: A company, which wants to tap the foreign market by raising foreign funds
by way of ADR/GDR issue is called issuer company. This company is responsible for making
draft of the issue proposals as per the regulations applicable to them.
(II)Lead manager: Responsibility of marketing the issue lies with the lead manager. A lead
manager: a) advise the issuer company about the type of securities which the former can issue
in the global market. These securities can be equity, bonds, foreign currency convertible bonds
(FCCBs); b) give suggestions about the rate of interest, price of the securities, market
conditions, nature of investment conversion price etc to the issuer company.
(III)Co-managers/underwriters: Underwriters assists the lead managers to perform their
duties with regard to the global issue to make it a successful effort.

(IV) Depository: Depository is a bank authorized by the issuer company to raise funds by
issuing ADRs/GDRs. Depository is the overseas agent of the issuer company who performs the
function of issuing ADR/GDR to the
investors to compensate for shares allotted to them. Depositorys name appears in the register
of members of the
issuer company, as he is the registered owner of the shares.
(V)Custodian: It is a banking company situated in India which acts as a custodian for the
ordinary shares or FCCBs of an Indian company and is appointed by the issuer company.
Custodian has physical possession of the shares(although its ownership rests with
the investors) and it works in coordination with the depository.
(VI) Legal advisors: Legal advisors actually help the issuer, lead manager, underwriters
in giving legal advice in various documents published by them, viz., prospectus, various
agreements etc.
(VII)Auditors: Various information need to be verified to be included in the prospectus,
therefore, auditors provide report of verified information about the issuer company. The auditors
also participate in the meetings for due diligence and provide a report on that as well.
Q.5 What is Online Trading? Explain the process of online trading.
Ans:- Online Trading:
Online trading is one of the crucial financial services provided by financial institutions and
merchant bankers. For example, Indiabulls Securities Limited is one of Indias foremost stock
brokerage house having a pan India presence. The organization is a pioneer in providing online
stock trading platform in India and currently has a customer base of seven lakh customers.
Online trading is completed through Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE). Market timings are 9 am to 4 pm and traders carry out trading in these
markets. On a days trading, stock rise is dependent and fluctuations are linked to the trading on
these exchanges. Online trading leads to smoother and quicker transaction on these
exchanges. Some 5,000 companies were listed on the BSE and 1,650 companies were listed
on the NSE till December 2011. The government recognized BSE in 1956. In 1995, in a span
of fifty days BSE was converted into an electronic trading system from an open outcry floor
trading exchange system. In the new electronic trading system, there is an automated screenbased trading platform which is known as BOLT (i.e. BSE online trading system) and at present
it has an ability of eight million orders a day. This system enables an investor to trade from
any part of the world. This system is the worlds first centralized exchange- based internet
trading system called BSEWEBx.co.in.
NSE was established by the efforts of leading financial institutions, banks, insurance companies
and few financial intermediaries on behalf of the government and was incorporated in November
1992. It was the first ever exchange with electronic limit order book (called LOB), which permits
trading in securities, has investor grievance cell and investor protection fund, supports gold
ETFs, and uses satellite communication technology for trading (NEAT- National Exchange for
Automatic Trading).
These two exchanges are the backbone of the Indian economy and their functionaries are
movement setters to numerous other stock exchanges across the country and the world.
Both NSE and BSE have switched over to computerized online trading system from open
outcry trading system. BSE has BOLT (BSE Online Trading) and NSE has NEAT

(National Exchange Automated Trading). With these highly efficient online trading systems,
efficiency and transparency of BSE and NSE have increased dramatically.
Process of Online Trading:Online trading can be defined as the procedure through which transaction of financial securities,
currencies and commodities takes place through the internet. Investors should use the
right software made available by several brokers for making online transactions. Several leading
online transaction portals are available in India besides the ones provided by NSE and BSE.
The settlement cycle in India is T+2 days i.e. trade + 2 days. T+2 means the transactions done
on the trade day, will be resolved by exchange of money and securities on the second business day
(excluding Saturday, Sundays, bank and exchange trading holidays). Pay-in and pay-out for securities
settlement is done on a T+2 basis. The trading and settlement process in India has been listed
below:
Orders are placed at the trading depots by investors.
It is the responsibility of the broker houses to confirm the orders and then certify them to the
exchange (BSE or NSE as per the clients choice).
Order corresponding at the exchange.
Trade confirmation information is provided by brokers to the investors.
The clearing corporation obtains the particulars of trade from the exchange.
The clearing corporation conveys the particulars of trade to clearing members/custodians who
validate it. Based on the validation, the clearing corporation decides the duties and
responsibilities.
Understanding of duties and responsibilities and pay-in advice of funds/ securities by
the clearing corporation.
The clearing corporation orders the clearing banks to make funds available by pay-in time.
The clearing corporation orders the depositories to make securities available by pay-in-time.
Pay-in of securities: The clearing corporation recommends the depository to debit pool account
of custodians/clearing members and credit its (clearing corporations) account and depository
does the same.
Pay-in of funds: The clearing corporation recommends the clearing banks to debit account of
custodians/clearing members and credit its account and clearing bank does the same.
Hence, in online trading, orders are executed through online trading platforms presented by
various brokers. Orders are straightaway placed at a brokers site by the investors. The broker
is responsible for carrying out the orders on the stock exchange and also makes payments on
behalf of the clients. Besides, brokers also provide clients with information related to current
market trends, news and charts through their online portals. This helps the investor in taking
correct decisions. In return for these services, brokers charge software usage fees and trading
commissions for their services. An investor is able to trade in more than one product/market
through the same account and software.
Q.6 Write short notes on: Depository Participants
Benefits of Depository Systems
Ans:- (a) Depository Participants
All the functions performed by depositories are actually executed by the depository participants
(DPs). All activities related to recording of allotment of securities, transfer of securities etc. are
executed through depository participants and no investor can directly open an account with a
depository. A depository can enter into an agreement with various depository participants who
would work as agents of the depository. Depository Participant works as an intermediary
between the investor and depository and they are called as agents of the depository. The

Depositories Act, 1996, and SEBI (Depository & Participants) Regulations,1996, specify the
relationship between a depository and depository participant. Any issue related to the
governance of relationship between the depository and DPs will be in accordance with
the Depositories Act and SEBI regulations. A depository participant is always registered with
SEBI and is a legal entity. Once a depository participant obtains a certification of registration
with SEBI after that it can start giving its depositories-related services.
SEBI (Depository & Participants) Regulations, 1996, has prescribed a minimum net worth of
`50 lakh for the applicants who are stockbrokers or Non-Banking Finance Companies (NBFCs),
for granting a certificate of registration to act as a depository participant.
For R&T agents, a minimum net worth of `10 crore is prescribed in addition to a grant of
certificate of registration by SEBI.
A stockbroker can act as a depository participant in more than one depository but in that case
the stockbroker has to comply with the criteria of each depository in order to maintain a
specified net worth.
Similarly some other specifications are given for the NBFCs when they work as depository
participant on behalf of a person.
For R&T agents, the specifications for net worth are different and given in SEBI (D&P)
Regulations, 1996
.Eligibility Criteria for becoming Depository Participants:
The eligibility criteria to become DPs have been prescribed by the SEBI (Depository &
Participants) Regulations, 1996, and the by-laws of depositories. The DPs have to comply
with the by-laws of the respective depositories, for which membership is sought.
(i) Basic Eligibility:
Persons belonging to one of the following categories are eligible to become a DP:
1. A public financial institution as defined in Section 4A of the Companies Act.
2. A bank included for the time being 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 State Financial Corporation established under the provisions of Section 3 of the State
Financial Corporations Act,1951.
5. An institution engaged in providing financial services, promoted jointly or severally by any of
the institutions mentioned in the four above- mentioned clauses.
6. An R&T agent who has been granted a certificate of registration by SEBI.
(ii)Net worth:
SEBI (Depositories & Participants) Regulations, 1996, prescribe a minimum net worth criteria for
different kinds of applicants:
For applicants who are stock brokers or non-banking finance companies, the net worth should
be `50 lakh, for granting a certificate of registration to act as a DP.
For R&T agents, a minimum net worth of `10 crore is prescribed in addition to a grant of
certificate of registration by SEBI.
If a stockbroker seeks to act as a DP in more than one depository, he should comply with the
specified net worth criterion separately for each such depository.
If an NBFC seeks to act as a DP on behalf of any other person, it needs to have a net worth of
`50 crore in addition to the net worth specified by any other authority.
Code of Conduct for Participants:

The depository participants who have certificates shall abide by the following code of conduct
issued by SEBI on 1 October2003:
1.A participant shall make all efforts to protect the investors.
2.. A participant shall maintain high standards of integrity in all its dealings with its clients and
other intermediaries, in the conduct of its business.
3. A participant shall be prompt and diligent in opening of a beneficial owner account, dispatch
of the dematerialization request form, rematerialization request form and execution of debit
instruction slip, and in all other activities undertaken by him on behalf of the beneficial owners.
4. A participant shall endeavour to resolve all the complaints against it or in respect of the
activities carried out by it as quickly as possible, and not later than one month of receipt.
5.A participant shall not increase charges/ fees for the services rendered without proper
advance notice to the beneficial owners.
6.A participant shall not indulge in any unfair competition, which is likely to arm the interest of
the other participant or investors or is likely to place such other participants in a weak position
while competing for or executing any assignment.
7.A participant shall not make any exaggerated statement whether oral or written to the clients
either about its qualification or capacity to render certain services or about its achievements with
regard to services rendered to other clients.
8. A participant shall not divulge to other clients, press or any other person any information
about its clients which has come to its knowledge except with the approval / authorization of the
clients or when it is required to disclose the information under the requirements of any Act,
Rules or Regulations.
9.A participant shall co-operate with the Board as and when required.
10. Stock Exchanges
Benefits of a Depository System:In the depository system, the ownership and transfer of securities takes place by means of
electronic book entries. At the outset, this system rids the capital market of the dangers related
to handling of paper. NSDL provides numerous direct and indirect benefits like:
Removal of bad deliveries:In the depository environment, once holdings of an investor are dematerialized, the question
of bad delivery does not arise, i.
e., they cannot be held under objection
Removal of all hazards associated with physical certificates:Dealing in physical securities have associated security risks of theft of stocks, mutilation of
certificates, loss of certificates during movements through and from the registrars, thus exposing
the investor to the cost of obtaining duplicate certificates, etc. This problem does not arise in the
depository environment
No stamp duty:For transfer of any kind of securities in the depository. This waiver extends to equity shares,
debt instruments and units of mutual funds
Immediate transfer and registration of securities:In the depository environment, once the securities are credited to the
investors account on pay out, he becomes the legal owner of t
he securities. There is no further need to send it to the
companys registrar for registration

Speedy settlement cycle:The settlement cycle follows rolling settlement on a T+2 basis, i.e., the settlement of trades will
be on the second working day from the trade day. This will enable faster turnover of stock and
more liquidity with the investor
Faster pay-out of non cash corporate benefits like rights, bonus, etc.:NSDL provides for direct credit of non-cash corporate entitlements to an investors account,
thereby ensuring faster disbursement and avoiding risk of loss of certificates in transit
Decrease in brokerage by many brokers for trading in dematerialized securities:Brokers provide this benefit to investors as dealing in dematerialized securities reduces their
back office cost of handling paper and also eliminates the risk of being the introducing broker
Periodic status reports:To investors on their holdings and transactions, leading to better controls
Removal of problems related to change of address of investor:In case of change of address, investors only have to inform their DP and submit the relevant documents and the
required changes are effected in the database of all the companies, where the investors is a registered
holder of securities
Removal of problems related to transmission of demat shares:In case of dematerialized holdings, the process of transmission is more convenient as the transmission
formalities for all securities held in a demat account can be completed by submitting documents
to the DP
Removal of problems related to selling securities on behalf of a minor:A natural guardian is not required to get court approval for selling demat securities on behalf of
a minor.