The depository system functions as under:
1. The system envisages setting up of one or more depositories to hold securities of investors in the electronic form.
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2. The depository functions through its agents, who are called Depository Participants (DP).
3. The investor, who wants to avail the services of the Depository, has to open a beneficiary account with the Depository through a DP. The account known as the “Demat” account can be opened with more than one DP also.
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4 After opening the demat account, the investor is required to dematerialize the securities held by him in the physical form. To dematerialize the securities, the investor has to fill the Dematerialisation Request Form (DRF) and submit the same to the DP along with the security certificate.
The DP through the Depository will intimate the company/issuer and surrender the security certificate. The process known as ‘dematerialisation’ takes about 30 days.
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5. The issuer/company on receipt of the intimation shall cancel the security certificate and substitute the name of the Depository as the registered owner of the security.
6. The Depository on being intimated by the company/issuer enters the name of the investor in its record as the beneficial owner of the security.
7. Whenever any rights, bonus or dividend is announced by a company for its particular security, the Depository would furnish all the details of the investors having electronic holdings of that security on the record date. The disbursement of the rights, dividends etc are, thus done by the company based on the information provided.
8. In case of sale of the security under this mode, the investor/transferor (the client) has to intimate the DP through issuing a Delivery Instruction Slip (DIS) duly signed and containing the details of the security transaction.
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In case of purchase, the client will send the intimation to the DP giving details of the security purchased. The Depository on receiving the information through the DP will register the transfer of securities in the name of the transferee in its record.
9. DP will also make book entries in the account of the investor to record sale/purchase of securities.
10. DP is required to send statement of accounts to the clients at regular intervals, and update the account after each transaction.
11. The client/ investor has to pay charges to the Depository and the DP for availing the services.
