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Investing Through Demat Accounts in India

Introduction to Demat Holdings

The National Securities Depositaries Limited or NSDL acts as a custodian of retail shareholders by providing a detailed statement of holdings. Any retail investor desirous of availing NSDL's service should register through NSDL's Ideas portal (Internet-based Demat Account Statement portal) through the shareholder's Depository Id and Client Id. NSDL Ideas portal offers seamless information related to one's Demat account and detailed shareholding information.

A shareholder currently has the facility to transfer shares through offline mode. In this case, a shareholder has to approach the respective broker, fill up the details in Delivery Instruction Slip or DIS slip and then apply for transfer of shares manually. Manual transfer of shares is applicable only to the shareholders who have vested the Power of Attorney rights with the broker. It is otherwise not possible to execute the transfer of shares without POA rights.

Further NSDL also has enabled a facility to transfer shares online through the Speed-E facility. Speed-E enables a shareholder to transfer shares online in a seamless manner. However, NSDL mandates that a shareholder avail the facility of a Digital Signature Certificate or DSC. A DSC certificate is mandatory to process the online transfer of shares. The advantage of Speed-E is that it eliminates the need for the POA to execute the transfer of shares but instead relies on a Digital Signature Certificate to validate the online share transfer.

Demat Holdings in CDSL

CDSL or Central Depository Services Limited is also another Depositary of shares in the market. CDSL too offers the facility of transfer of shares online. For this, an investor has to sign up to the EASI portal initially on the CDSL portal.EASI feature offers the basic services to the shareholder i.e. to view the statement of holdings in respective account.

To facilitate the online transfer of shares, a shareholder has to further register to the EASIEST portal with the credentials of the EASI portal. The EASIEST portal offers a seamless transfer of shares to the trusted users through the generation of a TPIN.

The shareholder can transfer share online through EASIEST credentials for intra-depository transfer of shares. For inter-depository of shares, the portal mandates installation of a DSC token to process the seamless transfer of shares online.

Consolidated Account Statement or CAS

Both NSDL and CDSL provide the facility of a Consolidated Account Statement or a CAS statement for the benefit of shareholders. The CAS statement contains the Demat holdings of a shareholder related to Depository Participant, Client Identification number, Shareholding Statements, Mutual Fund Folios, and any other investments held by a shareholder.

A CAS statement is sent to the registered email address of the shareholders on a periodic basis either on a monthly basis or quarterly basis. The details in the CAS statement are updated through the information made available from Know Your Customer or KYC data.

If a shareholder intends to change any details with respect to KYC data as found in the CAS statement, the shareholder has to approach the respective Depository Participant to update the necessary details.

Dematerialization of Portfolios

Mutual Funds and Shares are sometimes held in physical mode. Such physically held portfolios are now allowed to be converted into an online mode through the Dematerialisation process. For this, an investor has to approach a Depository Participant with whom one intends to invest online and submit a Conversion Request Form or a CRF along with a Statement of Account or SOA. The Depository Participant will then send the portfolios to the respective stakeholders i.e. either the Asset Management Company (AMC) or Registrar and Transfer Agent (RTA) for conversion of physical folios into an online folio.

The AMC/RTA will verify the request upon receipt of the CRF form. The Depository Participant is then issued a confirmation by AMC/RTA to convert physical folios into online dematerialized portfolios. The Dematerialised portfolio can be viewed along with a Consolidated Account Statement or CAS slip which will provide all the necessary information related to the respective shares/mutual fund units.

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Electronic Delivery Instruction Slip or E-DIS Facility

A retail investor can open a Demat account with any stockbroker who otherwise is registered as per the mandate by SEBI. An investor is then allotted a Depository Participant Identity and Client identity issued by the stockbroker. The DP Id and Client Id are registered either with National Securities Depositories Limited (NSDL) or Central Depositary Service Limited (CDSL). The retail investor registers for share trading by providing the basic details including bank account details through the KYC mandate. A Power of Attorney is also drafted to be executed by the stockbroker on behalf of the retail investor.

In an age of technological revolution, the need to execute physical Power of Attorney or POA to the stockbroker needs a policy overhaul. The shares are otherwise executed for online transfer through the E-DIS facility (or Electronic Delivery of Instruction Slip facility) offered by Speed-E registration on the NSDL portal and EASIEST registration on the CDSL portal. Hence the regulatory framework should revisit the need to execute physical POA and further establish an E-DIS facility as a mandate to execute both offline and online transfer of shares. The same will help ensure fairness and transparency in share trading and thus offer hassle-free service to retail investors.

The Green Initiative

In an era of technological revolution, both NSDL and CDSL have adopted an eco-friendly online initiative to gather inputs and to interact with the shareholders through the online mode. NSDL and CDSL have adopted a green initiative for the benefit of shareholders. The details related to the shareholders i.e. email address are collected from the KYC data as updated by the Depository Participants. The data then is used to disseminate information related to the companies including the dispatch of postal ballot notice, annual general meetings notice, e-votings notice, and Annual General Report.

Postal ballot which otherwise involved a manual polling process is now integrated with a seamless E-voting process through the respective e-voting portals. Also, the notices related to postal ballot announcement, e-voting announcement, copies of annual general meetings, and annual general reports are now dispatched through the registered emails of the shareholders. The shareholders who hold shares in physical form are otherwise recommended by both NSDL and CDSL to voluntarily signup for the green initiative.
Also, the Annual General Meetings which were conducted physically till the outbreak of a pandemic, have also turned to the green initiative.

The Hon'ble Ministry of Corporate Affairs has issued a mandate to hold the Annual General Meetings through video conference or other audiovisual means i.e. VC/OVAM to avoid any inconvenience to the general public and thus ensures a healthy environment. The Annual General Meetings provide an opportunity to conduct the meetings through video conferencing. It also provides an opportunity for the investors to participate and seek any clarifications by asking relevant questions during the video conference.

Live Webcast of Annual General Meetings

The Stock Exchange regulator has also mandated that the top 100 companies with market capitalization live webcast the annual general meetings. The live webcast helps the investors to understand the best practices followed by the company. It also ensures fairness and high transparency along with adherence to Corporate Governance standards.

Further the facility to live webcast the annual general meetings should also be extended to the top 500 companies with market capitalization also. As currently, these companies hold the annual general meetings at the Registered venue or any designated meeting place but without the facility of the live webcast. The suggestion will help to contribute to carbon offsetting while providing an opportunity to every investor to take part in the meeting and also cut down the need for physical travel.

Know Your Customer or KYC Mandate

KYC or Know Your Customer mandate is an obligation to be fulfilled by an investor while investing in stocks or share trading. KYC compliance is now a mandatory requirement that collects the data related to personal details like name, address, telephone, email address, bank details, and nomination details. These details are mapped to the respective Depository Participant with whom the shareholder has a trading account.

A Demat account is also updated with the shareholder's details through the Central KYC repository that collects such data. Further the KYC data from the shareholder is collected through a CKYC form in physical form. The same is then verified by the respective DP/RTA and then updated in the records.

It may be further suggested that the process of KYC update be transformed into a complete online facility. The online mode of KYC data collection will save time and eliminate the hassles involved otherwise in submitting the physical forms. NSDL or CDSL may act as repositories in addition to the existing facilities provided to the investors and thus it ensures fairness and transparency in the collection of online data.

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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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