Analysis of Demat Account and Online Trading

Published on Nov 30, 2023

Abstract

The commencement of E-Trading and Demat has transformed the capital market in India. With the help of Demat and Trading account, buying and selling of shares has become a much faster and even process than trading with the assistance of a physical broker.

It provides for the assimilation of bank, broker, stock exchange and depository participants. This helps to get rid of the painstaking procedure of investing in stock exchange. Today, if one wants to invest in stock market, he has to contact a broker on phone or meet him personally to place order. A broker generally gives such importance and additional service only to high net worth customers. But the introduction of Internet trading, even a common or a small investor gets an opportunity to avail the service at an affordable price which is much lesser than what is charged by a physical broker over the phone. Online trading has given customer a real time access to account information, stock quotes elaborated market research and interactive trading.

The prerequisites of Internet trading are a computer, a modem and a telephone connection, registration with broker, a bank a/c and depository account. The introduction of depository service is considered as the beginning of the trading of Stocks @ click. This means that you can arrange delivery of scrips sold anytime, anywhere to anyone by click of a mouse. Dematerialization facilitates to keep the securities in electronic form instead of paper form. It offers more advantageous than the physical certificate form. Despite the advantages of Dematerialization, the awareness levels among the investors relating to Demat account is not adequate because of numerous reasons. The investors are not sufficiently responsive of the concept of Demat account and the various financial institutions providing such services.

Objectives

An objective is the brainchild behind any project report. A project report will always have a certain objective which needs to be accomplished. Following are the objectives behind the preparation of my project at Indiabulls securities Ltd.

• To Compare Indiabulls Online share trading account with the big players in the Market i.e. ICICI, KARVY, HDFC, RELIENCE MONEY as well as with INDIA INFOLINE

• Identify the areas where INDIABULLS Scores above its competitors and what are its weak links.

• Know the market potential of INDIABULLS considering the fact that there are many competitors in this field with some more firms expected to join the fray in the near future. This will be done with the help of a questionnaire. Provide suggestions to the company regarding what else it can do to stand apart in this ever competitive field and thereby emerge as a market leader.

• To understand the company, its achievements and tasks, products and services and also to collect information about its competitors, its products and services offered.

• After understanding and collecting information about the organization and its competitors, a trainee will be able to work well for the organization.

• To Study present online share trading

Introduction

Demat refers to a dematerialized account. Just as we have to open an account with a bank if we want to save your money, make cheque payments etc, we need to open a demat account if we want to buy or sell stocks. So it is just like a bank account where actual money is replaced by shares. We have to approach the DPs (remember, they are like bank branches), to open our demat account.

Demat account allows you to buy, sell and transact shares without the endless paperwork and delays. It is also safe, secure and convenient.

Let's say our portfolio has 100 of Satyam, 50of Suzlon, 20 of ICICI BANK, 50 of Tech Mahindra and 100 of TCS shares. All these will show in our demat account. So we don't have to possess any physical certificates showing that us own these shares. They are all held electronically in our account. As we buy and sell the shares, they are adjusted in our account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.

Individuals, companies, Trusts, Partnership firms, NRIs, HUF, Banks and Institutions are allowed to open a depository account with any depository through a depository participant. The investor would need to execute a standard form giving all his details, bank details, instruction details, nomination details and off-course photograph and signature. Along with this form, the investor would also have sign an agreement with the depository participant which usually forms a standard part of the account opening process. The details on the form have to be matched with a photocopy of the investor's passport, driving license etc. to certify the mentioned details. If the investor is an NRI, then the client will have to provide overseas address, provide copy of RBI Approval, if any. The RBI Approval is not mandatory for opening of a DP. Account but is required to receive shares into the account when purchased through the secondary market.

Procedure for Purchasing Dematerialized Securities

The procedure for purchasing dematerialized securities is also similar to the procedure for buying physical securities.

1. Investor instructs DP to receive credits into his account in the Prescribed form. There may be one time standing instruction or Separate instruction each time to receive credits.

2. Investor purchases securities in any of the stock exchanges linked to Depository through a broker.

3. Broker receives payment from investor and arranges payment to Clearing corporations.

4. Broker gives instructions to DP to debit clearing account and credit Client's account. Investor receives shares into his account by way of book entry

Procedure for Selling Dematerialized Securities

The procedure for selling dematerialized securities in stock exchanges is similar as selling physical securities. The only major difference is that instead of delivering physical securities to the broker, the investor instructs his DP to debit his demat account with the number of securities sold by him and credit the brokers clearing account. The procedure for selling dematerialized securities is given below:

1. Investor sells securities in any of the stock exchange linked to depository through a broker.

2. Investor instructs his DP to debit his demat account with the number of securities sold and credit the broker's clearing account.

3. Before the pay-in-day, broker of the investor transfers the securities to clearing corporation.

4. The broker receives payment from the stock exchange.

5. The investor receives payment from the broker for sale of securities in the same manner as received in case of sale of physical securities.

Benefits of Dematerialization Account

• Safety : If we are holding our shares, bonds etc in physical (paper) form, there are chances of its theft, mutilation, and loss. Moreover, we are also exposed to the risks of fake papers, bad-delivery or delays at the time of transfer of physical securities. However, in DEMAT accounts; we can preserve our long-term investments safely and securely.

• Convenience: When we want to sell our dematerialized shares or redeem our debentures in DEMAT account; there are no hassles of filling up transfer forms, sending redemption requests or any other messy, costly and time-consuming paper work. We can conveniently transfer our securities through electronic transfers or just by signing one 'Delivery Instruction Slip', which is nothing but our chequebook for DEMAT Accounts.