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Overview

Shares are traditionally held in physical or paper form. This method could lead to loss/theft of certificates, forged/fake certificates, cumbersome and a time consuming procedure for transfer of shares. Therefore, to eliminate these weaknesses, a new system called Depository System was introduced in India after the enactment of the Depositories Act 1996.

A depository system is a system, which holds your shares in the form of electronic accounts in the same way a bank holds your money in a savings account.

Depository system provides the following advantages to an investor:

  • Your shares cannot be lost/stolen or mutilated.
  • You never need to doubt the genuineness of your shares i.e., whether they are forged or fake.
  • Share transactions like transfer, transmission etc. can be effected immediately.
  • Transaction costs are usually lower than that in the physical segment.
  • There is no risk of bad delivery.
  • Bonus/rights shares allotted to you will be immediately credited to your account.
  • You will receive the statement of account of your transactions/holdings periodically.

When you decide to have your shares in electronic form you should approach a Depository Participant (DP) who is an agent of the depository to open an account. You should surrender your share certificates in physical form and your DP will arrange to get them sent to and verified by the company and on confirmation credit your account with an equivalent number of shares. This process is known as dematerialisation. You can always reverse this process if you so desire and get your shares reconverted into paper form. This process is known as rematerialisation.

Share transactions (like sale or purchase and transfer/transmission etc.) in the electronic form can be effected in a much simpler and faster way. All you need to do is that after confirmation of sale/purchase transaction by your broker, you should approach your DP with a request to debit/credit your account for the transaction. The Depository will immediately arrange to complete the transaction by updating your account. There is no need for separate communication to the company to register the transfer.

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