introduction

A widely neither distributed nor such distress followed so quickly on the heels 1the
equity brokerage industry in India is one of the oldest in the Asia region. India had an
active stock market for about 150 years that played a significant role in developing risk
markets as also promoting enterprise and supporting the growth of industry. The roots of
a stock market in India began in the 1860s during the American Civil War that led to a
sudden surge in the demand for cotton from India resulting in setting up of a number of
joint stock companies that issued securities to raise finance. This trend was akin to the
rapid growth of securities markets in Europe and the North America in the background of
expansion of railroads and exploration of natural resources and land development.

Historical records show that as early as 1864, there were about 1,000 brokers with the
stock markets functioning from three places in Mumbai; between 9 am to 7 pm at the
junction of Meadows Street and Rampart Row, from day break till 9 am and from 7 pm to
early hours of next morning at Bazargate. Share prices rose sharply even at that time. A
share of Colaba Land Company during the boom period of the 1860s rose from Rs 10,000
at par to Rs 120,000 and that of Backbay Shares went up from Rs 2,000 to Rs 54,000.
Bombay, at that time, was a major financial centre having housed 31 banks, 20 insurance
companies and 62 joint stock companies.

Reports on stock markets around that time indicate that an ordinary broker in 1864 earned
about Rs 200 per day, a huge sum in those days. The boom period came to an abrupt end
in 1865. In Jul 1865, what was then used to be called the share mania ended with burst of
the stock market bubble? “Never had I witnessed in any place a run s of such prosperity”
thus wrote Richard Temple, who served as the Governor of Bombay at that time. An
interesting aspect is that despite the collapse of the stock market, most of the brokers met
their payment commitments. In the aftermath of the crash, banks, on whose building steps
share brokers used to gather to seek stock tips and share news, disallowed them to gather
there, thus forcing them to find a place of their own, which later turned into the Dalal
Street. A group of about 300 brokers formed the stock exchange in Jul 1875, which led to
the formation of a trust in 1887 known as the “Native Share and Stock Brokers
Association”. A unique feature of the stock market development in India was that that it
was entirely driven by local enterprise, unlike the banks which during the pre-
independence period were owned and run by the British. Following the establishment of
the first stock exchange in Mumbai, other stock exchanges came into being in major
cities in India, namely Ahmedabad (1894), Calcutta (1908), Madras (1937), Uttar
Pradesh and Nagpur (1940) and Hyderabad (1944). The stock markets gained from surge
and boom in several industries such as jute (1870s), tea (1880s and 1890s), coal (1904
and 1908) etc, at different points of time.

Beginning of a new equity culture

A new phase 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. The broad objectives of the SEBI include

· to protect the interests of the investors in securities

· to promote the development of securities markets and to regulate the securities

markets

The scope and functioning of the SEBI has greatly expanded with the rapid growth of
securities markets in India in the last fifteen years. Following the recommendations of the
High Powered Study Group on Establishment of New Stock Exchanges, the National
Stock Exchange of India (NSE) was promoted by financial institutions with an aim to
provide access to investors all over the country. NSE was incorporated in Nov 1992 as a
tax paying company, the first of such stock exchanges in India, since stock exchanges
earlier were trusts, being run on no-profit basis. NSE was recognized as a stock exchange
under the Securities Contracts (Regulations) Act 1956 in Apr 1993.

It commenced operations in wholesale debt segment in Jun 1994 and capital market
segment (equities) in Nov 1994. The setting up of the National Stock Exchange brought
to Indian capital markets several innovations and modern practices and procedures such
as nationwide trading network, electronic trading, greater transparency in price discovery
and process driven operations that had significant bearing on further growth of the stock
markets in India. Faster and efficient securities settlement system is an important
ingredient of a successful stock market. To speed the securities settlement process, The
Depositories Act 1996 was passed that allowed for dematerialisation (and
rematerialisation) of securities in depositories and the transfer of securities through
electronic book entry. The National Securities Depository Limited (NSDL) set up by
leading financial institutions, commenced operations in Oct 1996. Regulations governing
selection of various types of market intermediaries as depository participations were
made. Subsequently, Central Depository Services (India) Limited promoted by Bombay
Stock Exchange and other financial institutions came into being.

Rapid Growth
The last decade has been exceptionally good for the stock markets in India. In the back of
wide ranging reforms in regulation and market practice as also the growing participation
of foreign institutional investment, stock markets in India have showed phenomenal
growth in the early 1990s. The stock market capitalization in mid-2007 is nearly the same
size as that of the gross domestic product as compared to about 25 percent of the latter in
the early 2000s. Investor base continued to grow from domestic and international
markets. The value of share trading witnessed a sharp jump too. Foreign institutional
investment in Indian stock markets showed continuous rise reaching about USD10 bn in
each of these years between FY04 to FY06. Stock markets became intensely technology
and process driven, giving little scope for manual intervention that has been the source of
market abuse in the past. Electronic trading, digital certification, straight through
processing, electronic contract notes, online broking have emerged as major trends in
technology. Risk management became robust reducing the recurrence of payment
defaults. Product expansion took place in a speedy manner. Indian equity markets now
offer, in addition to trading in equities, opportunities in trading of derivatives in futures
and options in index and stocks. ETFs are showing gradual growth. Within five years of
introduction of derivatives, Indian stock markets now are ranked first in stock futures and
fourth in index futures. Indian stock markets are transaction intensive and thus rank
among the top five markets in this regard. Stock exchange reforms brought in
professional management separating conflicts of interest between brokers as owners of
the exchanges and traders/dealers. The demutualization and corporatisation of all stock
exchanges is nearing completion and the boards of the stock exchanges now have
majority of independent directors. Foreign institutions took stake in India’s two leading
domestic stock exchanges. While NYSE Group led consortium took stake in the National
Stock Exchange, Deutsche Borse and Singapore Stock Exchange bought equity in the
Bombay Stock Exchange Ltd. The smooth functioning of all these activities facilitates
economic growth in that lower costs and enterprise risks promote the production of goods
and services as well as employment.

Sources of Data:

For completing the project primary and secondary data used. By way of collecting
secondary I used books, journals, news paper and magazine. The main aims of this study
are as follows.

Objectives of the study:

1. To study and analyse the process of Dematerialisation and Investors opinion

towards Demat Processing.

2. 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.

3. To explain the advantages of Dematerialisation of securities, convince and make

them to dematerialize their securities.
4. To know the problem faced by the investor and reason for physical holdings of
securities without dematerialization of securities.

5. To give awareness among the investors about Demat and to make them to open
Demat Account.

Scope and limitation of the study:

The present study seeks to analyse current operations of karvy stock broking company
regarding the demat processing services. Moreover karvy and its operation market is a
vast area with changing day to day regulation. So studying about karvy services its
implications, to the length and breath and finding the pors and cons accurately from the
point of view of investors protection is a difficult task in view of the time and energy left
before the candidate.

COMPANY PROFILE

KARVY is founded by a group of Hyderabad based CHARTED ACCOUNTANTS in

1982 as a professional service firm. In the span of 25 years, KARVY has traveled the
success route, towards building a reputation as an integrated financial services provider,
offering a wide spectrum of services.

KARVY has 575 offices over 375 locations across India and overseas at Dubai and
Newyork. Around 600000 active business associates are being attached with KARVY
across the country. It also comprises of 9000 highly qualified employees and
professionals.

KARVY GROUP COMPANIES:-

KARVY CONSULTANTS LTD. deals with depository participant services and IT

enabled services.

KARVY STOCK BROKING LIMITED creates opportunities for the customer by

opening up investment through valuable research based advisory services and providing
investment and brokerage services in Indian Stock Market.

KARVY COMTRADE LIMITED provides investment, advisory and brokerage services

in Indian Commodities Markets.

KARVY INSURANCE BROKING LIMITED provides both life and non-life insurance
products to retail individuals, high net-worth clients and corporate.

KARVY INVESTOR SERVICE LIMITED, SEBI registered Merchant Banker, leading

Investment Banking entity in the country and Corporate Finance.
KARVY COMPUTERSHARE PRIVATE LIMITED operates in five continents,
providing services and solutions to listed companies, investors, employees, exchanges
and other financial institutions and also registrar for IPOs.

KARVY – THE FINAPOLIS is a big distributor of equity and financial product and
provides planning and advisory services to the mass affluent.

KARVY GLOBAL SERVICES LIMITED deals with the specialist Business Process
Outsourcing.

KARVY REALTY & SERVICES (INDIA) LIMITED is engaged in business of real

estate and property services offering value added property services and offers individuals
and establishments a myriad of options across investments, financing and advisory
services in the realty sector.

In spite of all this KARVY has its RESERCH CENTER in Hyderabad and also a member
of Hyderabad Stock exchange. It is also a member of National Stock Exchange and
Bombay Stock Exchange.

ACHIVEMENTS:-

Ø Largest independent distributor for financial products

Ø Amongst the top 5 stock brokers in India.

Ø Largest network of branches and business associates

Ø Amongst top 10 investment Bankers..

Ø ISO 9002 certified operation by DNV.

Ø India’s No. 1 Registrar and Transfer Agent.

Ø Ranks among top 5 Depository Participant in India.

MISSION OF KARVY:-

To be a leading, preferred service provider to our customer, and to achieve this

leadership position by building an innovative, enterprising, and technology driven
organization which will set the highest standards of service and business ethics.
STOCK BROKING SERVICES:-

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high
success rate as a wealth management and wealth accumulation option. The difference
between unpredictability and a safety anchor in the market is provided by in-depth
knowledge of market functioning and changing trends, planning with foresight and
choosing one's options with care. This is what it provides in their Stock Broking services.

Karvy Stock Broking Ltd. offer services that are beyond just a medium for buying and
selling stocks and shares. Instead it provides services which are multi dimensional and
multi-focused in their scope. There are several advantages in utilizing our Stock Broking
services, which are the reasons why it is one of the best in the country. .

Karvy offers trading on a vast platform; National Stock Exchange, Bombay Stock
Exchange and Hyderabad Stock Exchange. More importantly, it make trading safe to the
maximum possible extent, by accounting for several risk factors and planning
accordingly. It is assisted in this task by our in-depth research, constant feedback and
sound advisory facilities. Their highly skilled research team, comprising of technical
analysts as well as fundamental specialists, secure result-oriented information on market
trends, market analysis and market predictions. .

DEPOSITORY PARTICIPANT SERVICES:- .

The onset of the technology revolution in financial services Industry saw the emergence
of KARVY as an electronic custodian registered with National Securities Depository Ltd
(NSDL) and Central Securities Depository Ltd (CSDL) in 1998. KARVY set standards
enabling further comfort to the investor by promoting paperless trading across the
country and emerged as the top 3 Depository Participants in the country in terms of
customer serviced. Offering a wide trading platform with a dual membership at both
NSDL and CDSL, it is a powerful medium for trading and settlement of dematerialized
shares. Karvy has established live DPMs, Internet access to accounts and an easier
transaction process in order to offer more convenience to individual and corporate
investors. A team of professional and the latest technological expertise allocated
exclusively to their Demat division including technological enhancements like SPEED-e;
make their response time quick and their delivery impeccable. A wide national network
makes their efficiencies accessible to all.

FINANCIAL PRODUCTS DISTRIBUTION SERVICES:- .

The paradigm shift from pure selling to knowledge based selling drives the business
today. With our wide portfolio offerings, Karvy occupy all segments in the retail
financial services industry. A team of highly qualified and dedicated professionals drawn
from the best of academic and professional backgrounds are committed to maintaining
high levels of client service delivery. This has propelled them to a position among the
top distributors for equity and debt issues with an estimated market share of 15% in terms
of applications mobilized, besides being established as the leading procurer in all public
issues.

ADVISORY SERVICES:- .
Under their retail brand ‘KARVY – the Finapolis', it delivers advisory services to a
cross-section of customers. The service is backed by a team of dedicated and expert
professionals with varied experience and background in handling investment portfolios.
They are continually engaged in designing the right investment portfolio for each
customer according to individual needs and budget considerations with a comprehensive
support system that focuses on trading customers' portfolios and providing valuable
inputs, monitoring and managing the portfolio through varied technological initiatives.
This is made possible by the expertise it has gained in the business over the years.
Another venture towards being investor-friendly is the circulation of a monthly magazine
called ‘KARVY - the Finapolis' covering thlatest of market news, trends, investment
schemes and research-based opinions from experts in various financial fields.

PRIVATE CLIENT GROUP:-

This specialized division was set up to cater to the HIGH NET WORTH INDIVIDUAL
and institutional clients keeping in mind that they require a different kind of financial
planning and management that will augment not just existing finances but there lifestyle
as well. Here they follow a hard-nosed business approach with the soft touch of dedicated
customer care and personalized attention. For this purpose they offer a comprehensive
and personalized service that encompasses planning and protection of finances, planning
of business needs and retirement needs and the host of other services, all provided on a
one-to-one basis.

DEPOSITARY SYSTEM

Although India had a bright capital market which is more than a century old, the paper-
based settlement of trades caused substantial problems like bad delivery and delayed
transfer of securities. The enactment of Depositories Act in August 1996 paved the way
for establishment of National Securities Depository Limited (NSDL), the first
depository in India and Central Depository Services (India) Ltd. (CDSL). In a span of
about 11 years, investors have switched over to electronic [demat] settlement and
National Securities Depository Limited (NSDL) stands at the centre of this change.

DEPOSITORY SYSTEM:-

A "Depository" is a facility for holding securities, which enables securities transactions

to be processed by book entry. To achieve this purpose, the depository may immobilize
the securities or dematerialise them (so that they exist only as electronic records). India
has chosen the dematerialisation route. In India, a depository is an organisation, which
holds the beneficial owner's securities in electronic form, through a registered Depository
Participant (DP). A depository functions somewhat similar to a commercial bank. To
avail of the services offered by a depository, the investor has to open an account with a
registered DP "Dematerialisation" is a process by which physical certificates are
converted into electronic form. Dematerialisation of securities occurs when securities
issued in physical form are destroyed and an equivalent number of securities are credited
into the beneficiary owner's account. India has adopted dematerialisation route to
depository. In a depository system, the investors stand to gain by way of efficient
settlements, lower costs and lower risks of theft or forgery, etc. But the implementation
of the system has to be secure and well governed. All the players have to be conversant
with the rules and regulations as well as with the technology for processing. The
intermediaries in this system have to play strictly by the rules. In the depository system,
securities are held in depository accounts, which is more or less similar to holding funds
in bank accounts. Transfer of ownership of securities is done through simple account
transfers. This method does away with all the risks and hassles normally associated with
paperwork. Consequently, the cost of transacting in a depository environment is
considerably lower as compared to transacting in certificates.

DEPOSITORY PARTICIPANT:-

The depositories can provide their services to investors through their agents called
depository participants. These agents are appointed subject to the conditions prescribed
under Securities and Exchange Board of India (Depositories and Participants)
Regulations, 1996 and other applicable conditions. It may be organisations involved in
the business of providing financial services like banks, brokers, custodians, financial
institutions, etc.

NATIONAL SECURITIES DEPOSITORY LIMITED (NSDL)

The enactment of Depositories Act in August 1996 paved the way for establishment of
NSDL, the first depository in India. This depository promoted by institutions of national
stature responsible for economic development of the country has since established a
national infrastructure of international standards that handles most of the securities held
and settled in dematerialised form in the Indian capital market.

Using innovative and flexible technology systems, NSDL works to support the investors
and brokers in the capital market of the country. NSDL aims at ensuring the safety and
soundness of Indian marketplaces by developing settlement solutions that increase
efficiency, minimise risk and reduce costs. At NSDL, we play a quiet but central role in
developing products and services that will continue to nurture the growing needs of the
financial services industry. .

CENTRAL DEPOSITORY SECURITIES (INDIA) LIMITED (CDSL)

Each and every activity of CDSL stem from the essential reason behind forming this
depository, i.e. to encourage India's individual investors to benefit from actively
participating in a depository. 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 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.

LEGAL FRAMEWORK:-

The operations of the depositories are primarily governed by the Depositories Act, 1996,
Securities and Exchange Board of India (Depositories & Participants) Regulations, 1996,
Bye-Laws approved by SEBI, and Business Rules framed in accordance with the
Regulations and Bye-Laws. The Depositories Act passed by Parliament received the
President's assent on August 10, 1996. It was notified in a Gazette on August 12 of the
same year. The Act enables the setting up of multiple depositories in the country. This
was to see that there is competition in the service and there is more than one depository in
operation. At present, two depositories are registered with SEBI - The National Securities
Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
Only a company registered under the Companies Act, 1956 and sponsored by the
specified category of institutions can set up a depository in India. Before commencing
operations, depositories should obtain a certificate of registration and a certificate of
commencement of business from SEBI.

SERVICES OF DEPOSITORY :-

A depository established under the Depositories Act can provide any service connected
with recording of allotment of securities or transfer of ownership of securities in the
record of a depository. Any person willing to avail the services of the depository can do
so by entering into an agreement with the depository through any of its participants. A
depository can provide depository services only through a DP. A depository cannot
directly open accounts and provide services to clients. Every depository in its Bye-Laws
must state which securities are eligible for Demat holding. Generally, the following
securities are eligible for Dematerialisation:
(a) Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or other body corporate.

(b) Units of Mutual Funds, rights under collective investment schemes and venture
capital funds, Commercial paper, Certificates of Deposit, Securitised debt, money market
instruments, government securities, National Saving Certificates, Kisan Vikas Patra and
unlisted securities.

FUNCTIONS OF DEPOSITORY:-

Dematerialisation:- One of the primary functions of depository is to eliminate or

minimise the movement of physical securities in the market. This is achieved through
Dematerialisation of securities. Dematerialisation is the process of converting securities
held in physical form into holdings in book entry form.

Account Transfer: The depository gives effects to all transfers resulting from the
settlement of trades and other transactions between various beneficial owners by
recording entries in the accounts of such beneficial owners.

Transfer and Registration: A transfer is the legal change of ownership of a security in

the records of the issuer. For effecting a transfer, certain legal steps have to be taken like
endorsement, execution of a transfer instrument and payment of stamp duty. The
depository accelerates the transfer process by registering the ownership of shares in the
name of the depository. Under a depository system, transfer of security occurs merely by
passing book entries in the records of the depositories, on the instructions of the
beneficial owners.

Corporate Actions: A depository may handle corporate actions in two ways. In the first
case, it merely provides information to the issuer about the persons entitled to receive
corporate benefits. In the other case, depository itself takes the responsibility of
distribution of corporate benefits.

Pledge and Hypothecation: The securities held with NSDL may be used as collateral to
secure loans and other credits by the clients. In a manual environment, borrowers are
required to deliver pledged securities in physical form to the lender or its custodian.
These securities are verified for authenticity and often need to be transferred in the name
of lender. This has a time and money cost by way of transfer fees or stamp duty. If the
borrower wants to substitute the pledged securities, these steps have to be repeated. Use
of depository services for pledging/ hypothecating the securities makes the process very
simple and cost effective. The securities pledged/hypothecated are transferred to a
segregated or collateral account through book entries in the records of the depository

Linkages with Clearing System: Whether it is a separate clearing corporation attached

to a stock exchange or a clearing house (department) of a stock exchange, the clearing
system performs the functions of ascertaining the pay-in (sell) or pay-out (buy) of brokers
who have traded on the stock exchange. Actual delivery of securities to the clearing
system from the selling brokers and delivery of securities from the clearing system to the
buying broker is done by the depository. To achieve this, depositories and the clearing
system should be electronically linked.

BENEFITS:-

The direct and indirect benefits of the depository system are described in detail below. 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.

Ø Elimination of bad deliveries:-

In the depository environment, once the holdings of an investor are dematerialised, the
question of bad delivery does not arise, i.e., their transfer cannot be rejected due to defect
in the quality of the security. All possible reasons for objecting transfer of title due to
deficiencies associated with transfer deed and share certificates are completely eliminated
since both transfer deed and share certificates are eliminated in depository system.

Ø Elimination of all risks associated with physical certificates:-

Dealing in physical securities has associated security risks of theft of stocks, mutilation or
loss of certificates during movements to and from the registrars. These expose the
investor to the cost of obtaining duplicate certificates, advertisements, etc. Such problems
do not arise in the depository environment.

Ø No stamp duty:-

There is no stamp duty for transfer of equity instruments and units of mutual funds in the
depository system. In the case of physical shares, stamp duty of 0.5% is payable on
transfer of shares.

Ø 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 the securities. There is no further need to send it
to the company's registrar for transfer of ownership or registration which is necessary in
the case of physical securities. This process normally takes longer than the statutory
prescribed period of two months thus exposing the investor to opportunity cost of delay
in transfer and to risk of loss in transit. To overcome this, the normally accepted practice
is to hold the securities in street names, i.e., not to register the change of ownership.
However, if the investors miss a book closure, the

securities are not good for delivery and the investor would also stand to loose his
corporate entitlements.

Ø Faster settlement cycle:-

With the introduction of electronic form of settlement, Indian Capital markets have
moved from 15 day long settlement cycle to T+2 settlement cycle where the settlement
takes place on 2nd day from the day of trading. This enables faster turnover of stock and
enhances liquidity with the investor.

Ø Buyer is secured:-

In the physical environment, seller was secured since the sale proceeds were always fully
realisable but the buyer was not, since it was not certain whether shares purchased will
get transferred or not. The market principle that buyer is king did not apply to the capital
market. This situation has now been corrected.

Ø Faster disbursement of non-cash corporate benefits:-

NSDL provides for direct credit of non-cash corporate entitlements like rights, bonus,
etc., to an investor's account, thereby ensuring faster disbursement and avoiding the risk
of certificates getting lost in transit.

Ø Reduction in rate of interest on loans:-

Some banks provide this benefit against pledge of Dematerialised securities.

Dematerialised securities eliminate hassles/risks like getting securities registered in their
name at the time of book closure if the pledgee defaults in repayment. Also eliminated is
the risk of stocks coming under objections when they are sent to the company's registrar
for registration, if the pledge has to be invoked.

Ø Increase in maximum limit of advances:-

This has increased from Rs. 10 lakh to Rs. 20 lakh per borrower. There is also a reduction
in minimum margin from 50% to 25% by banks for advances against

Dematerialised securities as per the Monetary and Credit Policy of Reserve Bank of India
for the first half of 1998-99.

Ø Reduction in brokerage:-
Since introduction of electronic settlement of securities there has been a significant fall in
the brokerage charged for brokers for effecting and settling trades of investors at the
stock exchanges. This benefit is given to investors as dealing in Dematerialised securities
reduces their back office cost of handling paper. It also eliminates the risk of being the
introducing broker.

Ø Reduction in handling of huge volumes of paper:-

In the physical environment, every entity involved in purchase or sale of securities was to
handle papers and pass on papers to the next entity. Number of papers to handle increased
with the volume of transactions. However, in the depository environment, except the
delivery instruction to be given by the client/broker, there is no other paper movement.
NSDL has permitted use of floppies to give debit instructions for large volumes of
transactions.

• NSDL has recently introduced a common internet based platform, SPEED-e, for Clients
of all DPs so that Clients can issue instructions to their DPs through Internet. Using
SPEED-e the client need not write delivery instructions or visit its DP for issuing
instructions. Clients can monitor the status of instructions given by them on SPEED-e on
Internet.

Ø Periodic status reports:-

DPs need to provide periodic reports to investors on their holdings and transactions. This
leads to better management control on the part of the servicing agency and better
information for the investors.

Ø Elimination of problems related to nomination:-

An account holder can get securities in all companies transmitted/transferred to his

account by completing formalities with a single entity i.e. DP. He need not deal with all
companies individually.

Ø Dematerialised securities can be delivered in the physical segment:-

Securities forming a part of the SEBI specified compulsory list (wherein delivery in
demat form is mandatory for all categories of investors) can be delivered in physical form
in the stock exchanges connected to NSDL & CDSL. This requirement is applicable to
physical deliveries wherein the number of securities is less than 500.

Ø Elimination of problems related to change of address of investors,

transmission, etc.:-

In case of change of address or transmission of Demat shares, investors are saved from
undergoing the entire change procedure with each company or registrar. Investors have to
only inform their DP about the change along with all relevant documents. The required
changes are effected in the database of all the companies where the investor is a
registered holder of securities. The investor will receive all cash corporate benefit like
dividends, interest warrants, redemption money, etc. at the new address with immediate
effect.

Ø Elimination of problems related to selling securities on behalf of a minor:-

NSDL system provides facility for opening demat accounts in the name of minor and
holding their securities in their own name. Since, under the Contract Act, 1872, the minor
is not eligible to enter into contracts at their own, the account in the name of minor is
required to be operated by their guardian. The guardian may be the natural guardian,
guardian appointed by will or the guardian appointed by an order of the court. The
minor's guardian will be eligible to open, operate and close the account on behalf of the
minor. The guardian(s) would be signing the instruction slips to be given to the
depository participant, on behalf of the minor. A minor however cannot be a joint
account holder. Non cash corporate benefits arising out of bonus/rights allotment of
shares are credited to the account of the minor. Cash corporate benefits will be issued by
the concerned issuer of securities in the name of the minor.

Ø Convenient consolidation of accounts:-

If multiple accounts were opened by investors, all accounts can be consolidated into one
account by giving instructions to DP. In case of physical certificates, consolidation of
folios required correspondence with all the companies individually.

Ø Convenient portfolio monitoring:-

Client can monitor portfolio by checking a single statement of holding/transaction.

Ø Newer services:-

Opportunities like pledge/hypothecation and stock lending are given specifically by the
depository system.

Ø Increased volumes:-

Due to ease in transaction and reduced costs, many players have entered/ increased their
transactions. This helps in improving liquidity.

SAFETY:-

NSDL has implemented various checks and measures in the depository system to ensure
safety of the investors' holdings. These include:
• A DP can begin operations only after registration by SEBI. The registration
process is based on the recommendation from NSDL after undertaking their own
independent assessment and evaluation. SEBI regulations have prescribed
fulfillment of several criteria for becoming a DP.

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

• There are periodic inspections into the activities of both DPs and R&T agents by
NSDL. This also includes records based on which the debit/credit are effected.

• The data interchange between NSDL and its business partners is protected by
standard protection measures such as encryption. This is a SEBI requirement.

• There are no direct communication links between two business partners and all
communications between two business partners are routed through NSDL. All
investors have a right to receive their transaction statement periodically from the
DP.

• Every month NSDL forwards statement of account to a random sample of

investors as a counter check.

• In the depository, the depository holds the investor accounts on trust. Therefore, if
the DP goes bankrupt, the creditors of the DP will have no access to the holdings
 in the name of the clients of the DP. These investors can then either rematerialise
their holdings or transfer them to a different account held with another DP.

• NSDL has a complete record of the client's transactions in addition to the records
of the DP

• Certification in Depository Operations:-

NSDL has introduced a Certification Programme in Depository Operations. This has

been made compulsory for all DPs. They have to appoint at least one person qualified in
this certification programme in their branches. This way, NSDL ensures that each branch
of a DP which services investors has at least one person who has thorough knowledge
about depository system.

• Investor grievances:-

All grievances of the investors are to be resolved by the concerned business partner
within 30 days. If they fail to do so, the investor has the right to approach NSDL at the
investor grievance cell of NSDL which would work towards resolution of the grievance.

• Insurance Cover:-

NSDL has taken a comprehensive insurance policy to protect the interest of the investors
in cases of failure of the DP to resolve a genuine loss.
 • Computer and communication infrastructure;-

NSDL and its business partners use hardware, software and communication systems
which conform to industry standards. Further, the systems are accepted by NSDL only
after a rigorous testing procedure. NSDL's central system comprises an IBM mainframe
system with a back-up facility and a remote disaster back-up site. Details with regard to
back-up system are as under:

• Machine level back up: The IBM mainframe situated at 'Trade World' (NSDL's office
in Mumbai) in which the data is processed has adequate redundancy built into its
configuration. There is a standby central processing unit (CPU) to which processing can
be switched over if the main system CPU fails. The disk has RAID implementation
which ensures that a single point failure will not lead to loss of data. The system has
spare disk configuration where data is automatically copied from the main disk when the
first failure is encountered (due to RAID implementation - first failure does not result in
loss of data). All network components like router, communication controllers, etc., have
on-line redundancy and thus a failure does not result in loss of transaction.

• Disaster back up site: In addition, a disaster back up site, equipped with a computer
identical to the mainframe computer & computing resources, has been set up at a remote
location away from Mumbai. NSDL operates generally from its Mumbai office but often
operations are conducted from the disaster back up site to ensure that the disaster site is
always in working condition.

• Back-up in case of power failure: Continuity in power supply to the main systems is
assured by providing dual uninterrupted power supply (UPS) for IBM-Mainframe and
related components wherein the two UPSs are connected in tandem. In case of failure of
primary UPS, the secondary UPS takes over instantaneously and thus, there is no
interruption in operation.

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

These safety measures taken by NSDL have to be complemented by a similar set of

measures at the end of each member of the depository system like the DPs, Issuers and
R&T Agents.

DEMAT PROCESSING IN KARVY STOCK BROKING LTD

Karvy Stcok Broking Ltd. is one of the leading Depository Participant (DP) in the
country. Karvy Demat services offers the investors a secure and convenient way to keep
track of their securities and investments, over a period of time, without the hassle of
handling physical documents that get mutilated or lost in transit. Karvy Stcok Broking
Ltd. is Depository particpant both with -National Securities Depositories Limited
(NSDL) and Central Depository Services Limited (CDSL). Karvy Demat services are
accessable any of its network over 575 branches / investor service centre located in over
375 cities and towns across the country. Karvy Demat services business has a distinction
of having all its operations ISO 9001:2000 certified with the state of the art-technology
and operations capabilites. Its Demat services have innovated over time and it provides
online access to the account statements and transaction alerts through SMS to its clients.

DEMAT ACCOUNT:-Demat refers to a dematerialised account. Just as open an account

with a bank if public want to save thier money, make cheque payments etc, the investor
need to open a demat account if he want to buy or sell stocks. So it is just like a bank
account where actual money is replaced by shares. The investors have to approach the
DPs (remember, they are like bank branches), to open their demat account. Let’s say the
investor Mr. X’s portfolio has 100 of Satyam, 200 of Reliance and 120 of TCS shares.
All these will show in his demat account. So, his doen’t has to possess any physical
certificates showing that he own these shares. They are all held electronically in his
account. As he buy and sell the shares, they are adjusted in his account. Just like a bank
passbook or statement, the DP will provide the investor with periodic statements of
holdings and transactions.

NEED of DEMAT ACCOUNT:-Nowadays, practically all trades have to be settled in

dematerialised form. Although the market regulator, the Securities and Exchange Board
of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form,
nobody wants physical shares any more. So a demat account is a must for trading and
investing. The demat account reduces brokerage charges, makes pledging / hypothecation
of shares easier, enables quick ownership of securities on settlement resulting in
increased liquidity, avoids confusion in the ownership title of securities, and provides
easy receipt of public issue allotments.
It also helps you avoid bad deliveries caused by signature mismatch, postal delays and
loss of certificates in transit. Further, it eliminates risks associated with forgery,
counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also
avoid stamp duty (as against 0.5 per cent payable on physical shares), avoid filling up of
transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.

STEPS INVOLVED IN OPENING A DEMAT ACCOUNT

First, an investor who wants to open a Demat Account to dematerialise their holdings has
to approach a Karvy and fill up an account opening form. The account opening form must
be supported by copies of any one of the approved documents to serve as proof of
identity (POI) and proof of address (POA) as specified by SEBI. Besides, production of
PAN card in original at the time of opening of account has been made mandatory.
All applicants should carry original documents for verification. Further, the investor has
to sign an agreement with Karvy in a depository prescribed standard format, which
details rights and duties of investor and DP (Karvy). Karvy provides the investor with a
copy of the agreement and schedule of charges for their future reference. After
verification of the entire certificate, Karvy opens the account in the system and gives an
account number, which is also called BOID (Beneficiary Owner Identification number).
SEBI has rationalised the cost structure for processing of Demat account account opening
charges, transaction charges for credit of securities, and custody charges. The Karvy may
revise the charges by giving 30 days notice in advance.

No charges shall be levied by Karvy for transfer of the securities lying in his account to
another branch or to another DP of the same depository or another depository.

In case the BO Account at transferor DP is a joint account, the BO Account at transferee

DP should also be a joint account in the same sequence of ownership.

PROCEDURE:-

1. Filling account opening form (available with Karvy).

2. Submitting the duly filled account opening form with introduction documents as
may be required.

3. Signing in the agreement with Karvy (agreement will state rights & obligations of
both parties). The agreement will contain the fee structure of Karvy. Karvy would
give the client a copy of this signed agreement for his record.

4. Karvy would give him Client Id no. (Account No.) once his depository account is
opened. This Client Id Number along with Karvy Id Number forms a unique
combination. Both of these should be quoted in the future correspondence with
Karvy/NSDL/ Issuing Company/their registrar & transfer (R&T) agent.
 5. Karvy would give to his clients pre-printed instruction slips for depository
services viz., dematerialisation, delivery instruction for trades, etc.. It should be
preserved carefully.

Karvy would give a list of deadlines for giving instructions for various depository
activities viz., transfer for effecting sale, purchase, etc.

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 Karvy.

Ø Beneficiary Account

Ø Clearing Member Account and

Ø Intermediary Account.

Beneficiary Account:- A Beneficiary Account is an ownership account. The holder/s of

securities in this type of account own those securities

Clearing Member Account:- The Clearing Member Account and Intermediary Account
are transitory accounts. The securities in these accounts are held for a commercial
purpose only. A Clearing Member Account is opened by a broker or a Clearing Member
for the purpose of settlement of trades.

Intermediary Account:- An Intermediary Account can opened by a SEBI registered

intermediary for the purpose of stock lending and borrowing.

DOCUMENTS REQUIRED FOR VERIFICATION:- For the purpose of verification,

the 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
Karvy would 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)-Any One

Ø Passport
Ø Voter ID Card

Ø Driving license

Ø PAN card with photograph

Ø Identity card/document with applicant's Photo, issued by

· Central/State Government and its Departments,

· Statutory/Regulatory Authorities,

· Public Sector Undertakings,

· Scheduled Commercial Banks,

· Public Financial Institutions,

· Colleges affiliated to Universities (this can be treated as valid only till the time
the applicant is a student),

· Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc., to their
Members; and

· Credit cards/Debit cards issued by Banks.

(b) Proof of address (POA) –Any One.

Ø Ration card

Ø Passport

Ø Voter ID Card

Ø Driving license

Ø Bank passbook

Ø Verified copies of

· Electricity bills (not more than two months old),

· Telephone bills (not more than two months old) pertaining to only Landline
telephones (other than Fixed Wireless Phone)

· Leave and License Agreement / Agreement for sale.

Ø Self-declaration by High Court & Supreme Court judges, giving the new
address in respect of their own accounts.

Ø Identity card/document with address, issued by

· Central/State Government and its Departments,

· Statutory/Regulatory Authorities,

· Public Sector Undertakings,

· Scheduled Commercial Banks,

· Public Financial Institutions,

· Colleges affiliated to Universities (this can be treated as valid only till the time the
applicant is a student) and

· Professional Bodies such as ICAI, ICWAI, Bar Council etc., to their Members.

The aforesaid documents are the minimum requirement for opening a Beneficial Owner
Account. After verifying the all the documents submitted by the applicant, Karvy would
open account in the name of applicant. While they only ask for photocopies of the
documents, they will need the originals for verification. The applicant should have to
submit a passport size photograph on which he sign across.

DOCUMENTS REQUIRED FOR OPENING DEMAT ACCOUNT & TRADING

ACCOUNT:-

Sl. No.

Requirements

Demat A/c

Trading A/c

Explanation
1

Photographs

One

One

Latest Colour Photograph Pass Port Size Neatly pasted and signed across

Nominee Photo

One

-
POI & POA of Nominee to be provided

PAN Card

One Copy

One Copy

All accounts will be opened on the name Appearing on PAN Card

Proof of Identity - Any one

One copy

One copy

Passport, Voter Id, Driving License

5
Proof of Address - Any One

One copy

One copy

Passport, Voter Id, Driving License, Ration card, Bank Pass Book / Statement, Verified
copies of Electricity Bill, Telephone bill not more than 2 months old, Mobile bills not
accepted

6(a)

Bank Statement
One copy

One copy

Recent bank Statement having at least 3 months transactions verified by your Bankers –
Online Statement not accepted.

6(b)

Bank Pass Book

One copy

One copy

First page & recent 3 months transaction page.

Cancelled Cheque
One Cheque

One Cheque

Please mention “Zero” as the amount and Do not sign the cheque preferably with MICR
Code

Client Signature

All the places Marked ‘X’

Signature must match the one given in the PAN Card in case the signature is not tallying
then bankers attestation is required on page 26 for Stock Broking and on Bank Letter
head for Demat Account.
9

Witness Name & Signature

Required

Required

In all the places where the client has signed.

10

Email Id

Required

Required

For assistance purpose.

FEE STRUCTURE OF KARVY:-

NOW to the crux — the cost of opening and holding a Demat account. There are four
major charges usually levied on a Demat account. i.e. Account opening fee, annual
maintenance fee, custodian fee and transaction fee. All the charges vary from DP to DP.
Karvy charges the following fees for Demat Account and Trading Account from their
clients for the services rendered by the Karvy.
Sl.No.

Requirements

Demat A/c

Trading A/c

Explanation

Agreement Cost

65.00

100.00

Stamp Paper Cost.

AMC

422.00

Broking Clients Only

3

Refundable Deposit

5000.00

Non-Interest Bearing

Total Payable

487.00

5100.00

Account-Opening Fee:- It is levied when the applicant opens the Demat account with
Depository Participant. Karvy does not charge account opening fee from their clients.

Annual maintenance fee:- This is also known as folio maintenance charges, and is
generally levied in advance.

Custodian fee:- This fee is charged monthly and depends on the number of securities
(international securities identification numbers — ISIN) held in the account. It generally
ranges between Rs.0.5 to Rs.1 per ISIN per month. Karvy will not charge custody fee for
ISIN on which the companies have paid one-time custody charges to the depository.

Transaction fee:- The transaction fee is charged for crediting/debiting securities to and
from the account on a monthly basis. Karvy is charging upto Rs.50/- per debit transaction
of the account. In addition, service tax is also charged by the Karvy.

PLEDGING:-
Dematerialised shares could be pledged. In fact, this is more advantageous as compared
to pledging share certificate. The following procedures are adopted while pledging the
dematerialized shares.

• Both (Pledgor) as well as the lender (Pledgee) must have Demat Account.

• One must initiate the pledge by submitting the details of the securities to be
pledged in a standard format which is available in Karvy.

• The pledge should confirm the request through Karvy.

• Once this is done, securities are pledged.

• All the commercial documentation between the pledgor and pledge are handled
outside the depository system.

• After receiving the repayment, the pledgee would instruct the Karvy for
requesting closure of pledge through standard format.

• TRADING OF SHARES:-
Karvy provides the following options to his clients regarding trading of the
dematerialized shares.

Cash Trading:-