study of icici direc.com - demeterilisaton in icici capital

A Study On ICICI Direct.Com, Demeterialisation of ICICI Capital Ltd.

EXECUTIVE SUMMARY

India has two hundreds years old tradition in securities. Infact that first Indian

stock Exchange established in Bombay is the oldest in Asia. The earliest

security dealings were transactions in loan securities of the East India

Company, the dominant institution of those days. Corporate shares came into

the picture by 1830’s and assumed significance with the Companies Act of

1956. In 1887 the broker community gave birth to the “Native Share and Stock

Broker Association” which is known as Bombay Stock Exchange.

The Indian Capital grew at a very moderate rate from 1951 to 1980. However

it registered an impressive growth in 1980’s. The process of liberalization and

the transparency in operations has raised the interest of the foreign investors

in India. Till 1978 there were only eight recognized exchanges in India.

At present there are twenty-two stock exchanges including OTCEI (Over the

Counter Exchange of India) and NSE (National Stock Exchange). Initially the

exchange operated on an outcry system i.e. manual system of trading. Due to

increase in trading volumes, the number of issuers increased substantially,

and the birth of NSE’s highly transparent automated system came into

existence. Even then there was an increase in paper work causing a gridlock

at every stage in the stock market. This delays the clearance and settlement

of traders, registration of securities in the share holders name and due to this

it increased the back office paper work of intermediaries. These outdated

systems have increased settlement risks and have rendered the

implementation of a delivery versus payment system impossible.

Introduction of de-mat and net trading has revolutionized the capital market.

Internet trading has made the process of buying and selling of shares much

faster and easier than physical broker. It provides integration of bank, broker,

stock exchange and depository participants. This eliminates the rigorous

process of investing in stock exchange.

East West College Of Management, Bangalore 1


Today when one wants to invest in stock market, he has to contact broker on

phone or meet him personally to place order. Broker gives much importance

and additional service only to high net worth customers but the internet

trading has given a opportunity to small investors to get best service at much

lower price than physical broker. Online trading has basically replaced a

phone call with the Internet. Instead of interacting with the broker over the

phone, the customer is clicking the mouse. 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, modem, telephone connection, and registration with broker, a bank

account and depository account.

Introduction of depository services is considered as the ‘Beginning of the Era

of Stocks@Click’. This means that you can arrange delivery of securities

(shares) sold any time, anywhere to any one by click of mouse.

Dematerialization facilitates to keep the securities in electronic form instead of

paper form. It offers more advantageous than the physical certificate form.

The scope of this study is limited to the performance of the industry.


mailto:Stocks@Click%E2%80%99


1.1 GENERAL INTRODUCTION

PHYSICAL CERTIFICATES - THE TRADITIONAL WAY

The Indian capital market has seen an unprecedented boom in its activity in

the last decade. We can now boast of a very large investor population and

substantial volumes of trade. However, this surge in activity has brought with

it, numerous problems that threaten the very survival of the Capital market in

the long run. A closer inspection of the problems would reveal that most of

them arise due to the intrinsic nature of paper based trading and settlement.

This century-old system of trading and settlement requires handling of huge

volumes of paper leading to increased costs and inefficiencies.

Simultaneously, they expose the investors to greater risks putting them at a

disadvantage. Some of these areas are:

Unwarranted delay in transfer of shares. It takes 30 to 60 days for the

investors to get the shares lodged in their name;

Possibility of forgery on various documents leading to bad deliveries, legal

disputes etc;

Theft of shares leading to defective title in shares purchased and

subsequent litigation;

Prevalence of fake certificates in the market;

Mutilation or loss of share certificates in transit;

Increased transaction costs due to stamp duty, fake shares, rejection by

registrars, etc.

This has made the investors, both retail and institutional, wary of entering the



Indian capital market. In this scenario, it was felt that the getting up of a

depository and the introduction of scrip less trading and settlement is

imperative for the efficient functioning of the market.

The Indian capital market has witnessed numerous changes in the recent

past. Historically stock market booms have always resulted in a number of

problems for the lay investor. Sometimes, the problem may magnify them and

threatens to engulf the entire capital market. A close introspection of these

problems will reveal that most of them are due to intrinsic nature of paper

based trading and settlement. All this may have driven away many potential

investors and Foreign Institutional Investors. Dematerialization of shares is

looked upon as the remedy for the ‘paper’ based problems.

With effect from august 19, 1998 SEBI has granted certificate of registration of

Central Depository Services (I) Ltd. (CDSL).

Yet even with demat, from the point of view of investors there are numerous

problems. Here Wallet Watch introduces you to setting up of a demat account

and introduction of scrip less trading and settlement. There are numerous

benefits of this scrip less trading and settlement, which Wallet Watch has

discussed in detail.

A Number of questions will be arising in the investor’s mind like;

What is demat?

What is depository?

What is depository participant?

How to dematerialize your shares?

How to sell /buy the dematerialized shares?



1.2 INTRODUCTION TO DEMATERIALIZATION

Even as the European and American stock markets reckon with the changes

brought about by the Internet and IT/telecom advances, the Indian stock

market has quickly moved to global standards.

The sheer breadth of the changes since the National Stock Exchange started

operations in 1994 and with the Securities and Exchange Board of India

(SEBI) also driving the changes in the market system, have enabled the

Indian market to move well ahead in just five years.

Even as online automated trading and better clearing and settlement

mechanisms have been put in place, perhaps, the most significant change in

the Indian market has been the coming of paperless trading; it may well be a

precursor to the next big changes – rolling settlements and Internet trading.

But the push towards paperless trading stands out even in a decade when the

market landscape has changed beyond recognition.

Dematerialisation (holding and trading securities in paperless mode) was an

alien concept in India before 1995; in five years, large quantities of paper

have been flushed out of the system. Since the entry of the foreign

institutional investors (FIIs) and online trading, the old system, laden with

paperwork at every conceivable stage, was out of place in an otherwise fast

trading environment.

As the FIIs complained about the paperwork as a major constraining factor,

the government and SEBI took notice. The requisite legislative changes were

put in place quickly - the Depositories Act, 1996 was passed and the NSE,

with the UTI and the IDBI, set up the National Securities Depository Ltd

(NSDL).

But the depository concept did not gain popularity; the FIIs which had

clamoured for its introduction, now ignored it. The reason: Lack of liquidity.

But, unless the institutional investors stepped in, there could be no liquidity.



This stalemate frustrated the push for a paperless environment.

Until SEBI stepped in, that is.

With regulatory pushes SEBI, in phases, made demat trading in stocks

mandatory for institutions first and, then, for all investors. Mandatory

paperless trading, forced the FIIs to dematerialise their holdings quickly.

As a consequence of SEBI's action, most major stocks are traded in the

paperless mode now. The second phase will involve some 200 stocks in a few

months time. The effect of SEBI's action is evident from NSDL's statistics. A

total of 698 companies, with a market capitalisation of Rs. 7,37,300 crores

(almost 80 per cent of the market capitalisation of all listed stocks), is enrolled

with the NSDL.

With 13.65 billion shares in the demat mode, nearly 19 million investor

accounts, and securities valued at Rs. 3,96,800 crores ($91 billions) actually

dematerialised, the concept of dematerialisation can be said to have taken

roots. If the regulatory direction is any indication, more paper will be flushed

out of the system in the next two years.

The costs of dematerialisation have declined as the NSDL slashed charges as

volumes expanded and the competition _ from the Central Depository

Services Ltd (CSDL) floated by the BSE _ started in 1999 second half. A

series of measures by SEBI and NSDL also helped ease the strain faced by

retail investors.

From a long-term perspective, demat in India is of considerable significance.

Not only has the general trading environment improved and quickened,

volumes too have perked up, even in the demat segment. With demat taking

off, there is now scope for an improvement in the quality of investor services.

As a consequence of dematerialisation, the Indian market is also well

prepared for web-based trading though the quality of telecom infrastructure



and inadequacies in the banking system-stock exchange linkages may cause

delays. Notably, with regard to the thrust towards paperless trading, the Indian

market managed in three years what took even the US much longer.

With a high degree of dematerialisation a reality, the stage is set for rolling

settlements and web-based trading. Once these are in place, the Indian

market will have moved closer to the standards in advanced markets, such as

the US. And paperless trading may well be the catalyst for such a rapid

advancement.

This is the concluding week of Business Line's 20-week series Markets – a

Century in Retrospect, which featured the most significant market- and

corporate-related events. Other, equally significant, specific topics of a micro-

nature will be published through the year.

* As conducted the study of S. Vaidya Nathan and BL Research Bureau

AN ANALOGY:

Table No. 1.1 Difference between Bank and Depository Participant

Bank Depository Participant

- Holds funds in Accounts.

- Transfer funds between accounts.

- Transfers without handling cash.

- Safekeeping of money.

- Holds securities in account.

- Transfer securities between

accounts.

- Transfers without handling

physical securities.

- Safekeeping of securities.



1.3 DEPOSITORY SERVICES - BEGINNING OF THE ERA OF STOCKS @ CLICK

Today it is a practical reality that you can arrange delivery of securities

(shares) sold anytime, anywhere, to anyone by a ‘click’ of the mouse and it is

possible to trade in securities and settlement of the accounts from the

convenience of a sitting room or through a laptop. This is made possible

because of the internet facility. The depository is responsible to deliver and

receive securities traded at the stock exchanges, which are the business

partners of the depository. It doesn’t deal with financial aspect of the

settlement of the trade.

Dematerialization of securities (shares) was the commencement of the era of

the stocks. The beginning was made in 1996, with legislation of the depository

act 1996 and SEBI regulations 1996. The securities are now a nattier

produced.

1.3.1DEOSITORY SERVICES

Linked to the capital markets.

Related to securities.

Shares

Debentures

Bonds

Commercial Papers

Other Financial Instruments



1.4 THEORETICAL BACKGROUND

The dematerialized form of shareholding and the depository mode of trade

(scrip less trade) have been in operation in developed financial markets for

over 15 years. In India, the first depository commenced operation a decade

back and is relatively new. The Indian financial market is in need of both scrip-

based and scrip less trade, but the investing community, which is used scrip-

based trade, is bound to take some time to accept the latter. The scrip less

trading, till now a domain of the western world, institutional investors and GDR

holders is now mandatory even for small investors. All those who hold

physical share certificates have to get them dematerialized. If they do not,

they will be forced to do so at the time of sale.

The countless numbers of conservative Indians have to digest it, whether they

like it or not. First, the institutional investors succumbed. Then the high net

worth individuals, trading in more than a certain numbers of shares, were

forced to give in. now, it is the turn of the small investors of select-companies.

With their share certificates being replaced by small slips and receipts,

naturally the average investors will have their share of fears and

apprehensions. It is necessary to educate and convince these investors about

the benefit of Demat rather than forcing them to take part in the game.

DEMATERIALISATION

Dematerialization is the process by which physical certificates of an investor

are converted to an equivalent number of securities in electronic form and

credited to the investor’s depository account with his Depository Party (DP).



DEPOSITORY

A Depository account is similar to a bank account. It gives a summary of

investor’s holding of securities in the companies in the Indian Stock Exchange

and records transaction details of securities bought and sold during the

period. The information of securities holding is maintained in the electronic

form. The securities in the depository account do not have any numbers to

distinguish them and are identified by the total number of securities held for

each company by the depository on the investor’s account.

DEPOSITORY PARTICIPANTS

A Depository participant is an agent appointed by the depository and is

authorized to offer depository services to all investors. An investor can not

directly open a demat account with the depository. An investor has to open his

account through a DP only. The DP in turn opens the account with the

Depository. The DP in turn takes up the responsibility of maintaining the

account and updating them as per the instructions given by the investor from

time to time. The DP generates and provides the holdings statement from

time to time as required by the investor. Thus, the Depository Party (DP) is

basically the interface between the investor and the depository.

This system has now become mandatory for a list of specified shares. Under

this system, share certificates in the physical paper form as we know now

would be “Dematerialized” and the account of shares held would be kept like

money in a bank account. Whenever new shares are bought, the account

would be “credited” and whenever sold, the account would be “debited”. Such

accounts would be maintained by authorized agents are called “Depository

Participant” (DP).



WHAT IS A DEPOSITORY?

A corporate body that can hold shares in electronic form.

The depository is the registered owner of the securities and the holders

are beneficial owners.

Identifies beneficial owner of the shares.

Since there is no change in the registered ownership there is no stamp

duty levied on the transfer of shares.

Till some time back all shares were held in physical form. Ownership

vested with the registered holder.

CONCEPT OF DEPOSITORY

A depository means a place where anything is deposited. It can be anything

and can include securities, physical goods, cash or money or valuables. We

have safe deposit vaults where we deposit our valuables for safe custody but

under our control. This is also a form of depository. Internationally there are

two systems to hold securities.

1. The first is to hold securities in a physical form. The ownership can be

transferred by any means, including the electronic media. This is also

known as ‘immobilization of securities’. This system is followed where the

physical form of securities is low, for example, bullion.

2. The second system is to retain the details of the security holding in an

account in an electronic format, which is similar to maintaining a bank

account. This is known as ‘dematerialization of securities’. This system is

followed where the volume of securities is substantial.

With the growth of the Indian capital market in the decade and the increasing

trading activity in the stock market, the volume of paper being exchanged has



increased exponentially and will continue to increase. This was one of the

primary reasons for India opting for the ‘dematerialization’ depository route.

NEED FOR DEPOSITORY

Compulsory Demat trading introduced by SEBI in 1998

No market lots

Eliminates bad - delivery

Effects transfer of securities immediately

No stamp duty for transfer of shares

No handling of huge paper volumes (paperless trading)

Reduces transaction costs

Moving towards faster and smoother settlement cycles

Facilitates easy lending and borrowing on securities as it eliminates paper-

related risk.

Eliminates risks associated with physical certificates like loss, theft,

mutilation, forgery, etc



1.5 INDUSTRIAL BACKGROUND

DEPOSITORY SERVICES IN INDIA

India has two depository service providers, The National Securities Depository Limited (NSDL) was incorporated on 8th November 1996, and

The Central Depository Limited (CSDL) was incorporated in 1996 as the

second depository, to provide depository services to the investors.

The depositories are required to operate with in the legal framework of:

Depository Act 1996

SEBI (Depository and participants) Regulation ,1996

SEBI’s guidelines issued from time to time

Bye-laws

Business Rules

The bylaw and business rules are designed by the depository based on the

above to govern its functioning and operational procedures, and also that of

its business partners.

The procedures of NSDL and CSDL are not significantly different form as it

has to follow the same legal framework to operate.

ONLINE SHARE TRADING IS WAITING TO TAKE OFF IN INDIA

First, screen based trading changed the way of transactions was conducted.

Than demat enhanced the ‘ease’ quotient for investors. Today, it is buying

and selling of shares over the net. There is also quotes and trading ‘on the

move’, thanks to wireless application protocol. TV trading – you could soon be

buying and selling shares through television screens with high speed Internet

access. The technology ‘tango’ has truly revolutionized access and it

converged interest of the investors.



But, let’s get back to online share trading. The online brotherhood is currently

pegged at an approximate 75,000. And daily trading turnover is estimated in

the vicinity of 0.75% of the combined BSE and NSE daily turnover of about

Rs11, 000 crore. Point is there is tremendous scope for growth. Especially

when you consider the US, where trading over the net accounts for about

55% of the total volumes. And, in some Asian markets the figures as high as

70%.

The ‘do-it-yourself’ framework online share trading offers retail investors the

three benefits of transparency, access and efficiency. Paper work diminishes

significantly, and no more painful trips to your broker to check if everything are

in order. Online trading has made it possible to universalize access to retail

investors. This was earlier very difficult, as the cost of servicing often-

outweighed transaction volumes. Online brokerage ranges between 0.05 -

0.20 percent of the value of transactions for non-delivery-based trades, and

between 0.25 - 0.95 percent for delivery-based trades.

Once major investments in online infrastructure are over and done with and

with economies of scale coming into play – it is expected that brokerage rates

would head further downwards. Then there is always a flip side: Transaction

velocity is crucial. And more often than not, connections are lousy. There is

also a degree of investor skepticism about online payment and settlement

mechanisms in spite of all the encryption and fire walling brought into play.

Time and technology will soon assuage these concerns, which hark back to

the ‘physical’ days.

Its ‘hats off’ to the investors we’ve come to a stage where advances in

technology have significantly empowered the retail investor fraternity. Access

to online trading and latest financial happenings, apart from quotes and

unbiased investment analyses, all consolidate into a value-added product mix

in tandem with evolving markets that are more free and fairer. The Net Result:

An inquisitive, informed and demanding investor.

Today’s investor is more involved in managing his or her assets and analyzing



a vast array of investment options. Technology and today’s enabled investor

have, in turn, driven competition, resulting in reduced cost of trading,

transparency in dealings and pricing info that is accurate and real-time. More

and more investors now want to know how their trades are executed, and

whether they have received the best possible price. Critical components of

execution quality include the prices at which orders were executed as well as

the speed of execution.

The quality of execution, in turn, hinges on efficient order routing. We owe this

to our investor fraternity. On to some threat perception Domestic funds,

foreign institutional investors and operators comprise the three main market

constituents. And all three include term investors as well as opportunists in

their pecking order. Some, for instance, hitch their fate with what the Foreign

Institutional Investors are up to. All this spells spurting volumes. But nobody is

concerned about the resultant volatility. And some, not all, offer free

investment advice over the net to lure rookie investors with misleading

information. Prices of scrip’s can also be influenced to the advantage of

vested interests, courtesy to the net. Unlike in the US, stockbrokers out here

willingly (or under the force of circumstance) assume the role of ‘advisors’,

sans the neutral, non-vested stance. So, how do all things impinge on the

ordinary guys on the ordinary dreams?

Compare notes on margins, brokerage rates. But most importantly, think

carefully about the type, size and frequency of trades that you will be into

before opting for an online service provider. Most importantly, does your

online broker have what it takes to handle an upsurge in trading activity?

Goes without saying that it’s becoming easier to trade online, but it’s also

becoming easier to lose your money. So, carefully does it having said all that

it all boils down to investor confidence. This, to my mind, is a function of

investor education, streamlined and user-friendly systems, transparency,

efficiency and personalized service. All this assumes the cent restage, which

is illuminated by technology and choreographed by, well-meaning,

decipherable and implement able regulation.



CONCEPT OF DEPOSITORY

A depository means a place where anything is deposited. It can be anything

and can include securities, physical goods, cash or money or valuables. We

have safe deposit vaults where we deposit our valuables for safe custody but

under our control. This is also a form of depository. Internationally there are

two systems to hold securities.

1. The first is to hold securities in a physical form. The ownership can be

transferred by any means, including the electronic media. This is also

known as ‘immobilization of securities’. This system is followed where

the physical form of securities is low, for example, bullion.

2. The second system is to retain the details of the security holding in an

account in an electronic format, which is similar to maintaining a bank

account. This is known as ‘dematerialization of securities’. This system

is followed where the volume of securities is substantial.

With the growth of the Indian capital market in the decade and the increasing

trading activity in the stock market, the volume of paper being exchanged has

increased exponentially and will continue to increase. This was one of the

primary reasons for India opting for the ‘dematerialization’ depository route.

DE-MAT



over 15 years. In India, the first depository commenced operations a decade

back and is relatively new. The Indian Financial Markets is in need of both

scrip-based trade, but the investing community, which is used to scrip-based

and scrip less trade, is bound to take some time to accept the latter. The scrip

less trading, till now a domain of the western world, institutional investors and

GDR holders is now mandatory even for small investors. All those who hold





A process by which the physical certificates of an investor are taken back by

the company / registrar and actually destroyed and an equivalent number of

securities are credited in the electronic holdings of the investor.



1.6 HOW CAN ONE OPEN AN ACCOUNT IN DEMAT?

First an investor has to approach a DP 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 effective from April 01,

2006.

All applicants should carry original documents for verification by an authorized

official of the depository participant, under his signature.

Further, the investor has to sign an agreement with DP in a depository

prescribed standard format, which details rights and duties of investor and

DP. DP should provide the investor with a copy of the agreement and

schedule of charges for their future reference. The DP will open the account in

the system and give an account number, which is also called BO ID

(Beneficiary Owner Identification number).

The DP may revise the charges by giving 30 days notice in advance. SEBI

has rationalised the cost structure for dematerialisation by removing account

opening charges, transaction charges for credit of securities, and custody

charges vide circular dated January 28, 2005.

Further, SEBI has vide circular dated November 09, 2005 advised that with

effect from January 09, 2006, no charges shall be levied by a depository on

DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO

transfers all the securities lying in his account to another branch of the same

DP or to another DP of the same depository or another depository, provided

the BO Account/s at transferee DP and at transferor DP are one and the

same, i.e. identical in all respects. 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.



2.1 MEANING OF ICICI DIRECT.COM (ONLINE SHARE TRADING):

ICICI Direct.com is a truly online share-trading site. Which means that from

the time you punch in a buy or sell trade on your computer to the final

settlement in your account, everything happens completely online? The 3-in-1

e-invest account integrates your brokerage, bank and one or more depository

accounts to make sure that you can do the otherwise cumbersome share

trading from the comfort of your home or office, at absolutely any time of the

day or night.

2.2 STATEMENT OF THE PROBLEM

Online trading and Demat are the two emerging concepts in the stock market.

It involves personal factors, technical factors, business factors and economic

factors. The interplay of these factors on stock market requires a deep study

about the pattern process and procedures and performance. This study is

intended to identify the various concepts about demat and the online trading

and its way of functioning

ICICI provisions are not exposing to its customers extensively. Hence in this

report an attempt has been made to link the potential customers and the ICICI

Capital Services Ltd.

2.3 REVIEW OF LITERATURE

DEMATERIALISATION

Dematerialization is the process by which physical certificates of an investor

are converted to an equivalent number of securities in electronic form and

credited to the investor’s depository account with his Depository Party (DP).



DEPOSITORY

A Depository account is similar to a bank account. It gives a summary of

investor’s holding of securities in the companies in the Indian Stock Exchange

and records transaction details of securities bought and sold during the

period. The information of securities holding is maintained in the electronic

form. The securities in the depository account do not have any numbers to

distinguish them and are identified by the total number of securities held for

each company by the depository on the investor’s account.

DEPOSITORY PARTICIPANTS

A Depository participant is an agent appointed by the depository and is

authorized to offer depository services to all investors. An investor can not

directly open a demat account with the depository. An investor has to open his

account through a DP only. The DP in turn opens the account with the

Depository. The DP in turn takes up the responsibility of maintaining the

account and updating them as per the instructions given by the investor from

time to time.

The DP generates and provides the holdings statement from time to time as

required by the investor. Thus, the Depository Party (DP) is basically the

interface between the investor and the depository.



2.4 OBJECTIVES OF THE STUDY

Study of ICICI Direct.com (online share trading) Study of dematerialization in ICICI Capital Ltd. Customers satisfaction and awareness of ICICI Capital Services Ltd.

ICICI Capital Services Ltd., is depository participant (DP) and it is providing

the financial services to the share holders and various other DP’s also

providing almost same services which leads to a competition. So in order to

retain the existing customers of ICICI Capital Ltd. and to attract new

customers knowing the customers need and preferences and expectation is

very important. The study involves knowing the expectation and satisfaction

level of ICICI Capital Ltd. customers.

2.5 NEED FOR THE STUDY

To study the various concepts of demat and online trading.

To study the various plans of the

To study the cost of online trading.

To know the market leaders in this segment.

To offer suggestions based on findings.

2.6 OPERATIONAL DEFINITION OF THE CONCEPTS

DEMATERIALIZATION:






REMATERIALIZATION:

Conversion of shares from electronic form into physical form of the investors.

DEPOSITORY:

An organization where the securities of a shareholder are held in the

electronic form, at the request of the shareholder through the medium of the

depository participant.

DEMAT BASICS:

Before coming to those issues let us first ponder over what exactly Demat

share is and what has compelled Indian markets to go for such alternative. A

Demat share is a share kept in the electronic form, on behalf of the investor.

This share is held in the electronic form by an agency called National Security

Depository Limited. This agency is promoted solely for this purpose IDBI, UTI

and NSE. The State Bank of India has also acquired a minor stake in NSDL

subsequently. A depository participant interfaces between NSDL and the

investor.

HOLDING SECURITIES IN ELECTRONIC FORM:

A Demat share is very much different from a physical share in the following

manner:

It is held by NSDL on behalf of the investor whereas the investor holds a

physical share himself.

The holding and handling of such share is in electronic form.

An agent called depository participant wherein every investor who want to

hold share in Demat form has to open a account, provides the interface

between NSDL and the investor.



The NSDL can also legally transfer the demat shares into buyer’s account

from seller’s account.

The demat share kept in the electronic form can also be converted to

physical share on request.

Unlike physical share the demat share doesn’t have folio number or

certificate number.

There is no stamp duty in transfer of demat share from one account to

another, but depository participant charges some amount as transaction

fee as well as asset holding charges.

2.7 RESEARCH DESIGN OF THE STUDY

The study is based on survey technique. The study consists of analysis about

customer’s awareness and satisfaction of ICICI Capital Ltd. For the purpose

of the study 50 customers are picked up and their views solicited on different

parameters. The methodology adopted includes

Questionnaire

Random sample survey of customers

Discussions with the concerned

Personal interviews and informal discussions were held with ICICI Capital Ltd.

customers to ascertain the awareness and satisfaction level. Further applying

simple statistical techniques has processed the data collected.

SOURCES OF DATA :

Primary data: Questionnaire

Secondary data: are published materials such as periodicals,

journals, news papers, and website.



2.8 SAMPLING PLAN:

Sampling since segment wise investors in ICICI Capital Ltd. are not

available for the overall customers was considered for the study. 100%

coverage was difficult within the limited period of time. Hence sampling

survey method was adopted for the purpose of the study.

Population: (universe) customers of ICICI Capital services Ltd.

Sampling size: A sample of fifty was chosen for the purpose of the study.

Sample considers of small investor, large investors and traders of ICICI

Capital Ltd.

Sampling Methods: Probability sampling requires complete knowledge

about all sampling units in the universe. Since due to time constraint non-

probability sampling was chosen for the study.

Sampling procedure: From large number of customers of ICICI Ltd. were

randomly picked up.

Field Study: directly approached respondents.

DATA COLLECTION INSTRUMENT

COLLECTION OF DATA THROUGH QUESTIONNAIRES:

The data collected for the study purpose is through questionnaires. Fifty

customers of ICICIdirect.com have been selected randomly for the study

purpose and then the information revealed from the customers is analyzed

and interpreted in the study.



ORGANISATION OF FIELD WORK

Initial field work has done for pre testing tools for data collection. The data is

collected through the direct interaction with the ICICI’s customers through

questionnaires answered by them. Fifty customers of ICICI were randomly

chosen for the purpose of the study in Bangalore

DATA PROCESSING AND ANALYSIS PLAN

Data processing is an intermediary stage of work between data collection and

data analysis. The raw data, after collection, has been processed and

analyzed in accordance with the outline laid down for the purpose of the

study. Tabulation is the process of summarizing raw data and displaying them

on compact statistical table for further analysis. Data is further classified and

categorized for the hypothesis testing.



2.9 AN OVERVIEW OF THE REPORT

Chapter 1: Contains the general introduction and theoretical background of

the study.

Chapter 2: Consists of aspects of statement of the problem, literature

review, objectives, need, research design, scope and limitation of the study.

Overall it’s a research methodology of the study.

Chapter 3: Consists of all details relating to ICICI Ltd., and its Groups,

origin of organization, its development and future prospects. It also includes

profile of the respondents.

Chapter 4: Analysis regarding the customer awareness, satisfaction level

and findings including testing of hypothesis.

Chapter 5: Summary of findings, conclusions and recommendations.



2.10 SCOPE OF THE STUDY:

Globalization of the financial market has led to a manifold increase in

investment. New markets have been opened; new instruments have been

developed; and new services have been launched. Besides, a number of

opportunities and challenges have also been thrown open.

2.11 LIMITATION OF STUDY

Since sample size is only 50, which is not a true representative of the

population as a whole.

Since segment wise investors is not available in ICICI Capital Ltd. Overall

concept is taken for the study.

Information is partly based on secondary data and hence the authentic of

the study can be visualized and is measurable.

Level of accuracy of the results of research is restricted to the accuracy

level with which the customers have given their answers and the accuracy

level of the answers cannot be predicted.



3.1 ORIGIN OF THE ORGANIZATION

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LTD

In 1955, the government, the World Bank and a steering committee of 5

prominent businessmen and others to cater to private sector needs of long

term finance promoted ICICI. Since then, the capital structure of the company

has undergone significant changes with the role of the government getting

minimized. In the last fiscal, the company created history by becoming the first

Indian Company to list its shares on NYSE (New York Stock Exchange). The

company has presence in various businesses in the financial sector the

prominent ones are Infrastructure finances, Structured finance, Project

finance, Treasury services, Corporate finance, Advisory services, Demat

services etc. Due to the increased competition in the financial markets and

fund based business getting affected by lower margins and higher levels Non

Performing Assets (NPAs), the company is trying to get a major share in the

retail segment where the margins are better. This has been made possible

through the various subsidiaries, which the company has floated, and through

expansion of the distribution network. The company had realized the growing

importance of technology revolution in the market and has taken major

initiatives to enter the e-commerce segment in the year 1999 - 2000. It has

launched a number of portals and has also entered into alliances with other

major portals in the market. Over the years, ICICI has gained prominence in

most of the segments in financial sector through its various subsidiaries.

Some of the important ones are ICICI Personal Financial Services ICICI

InfoTech ICICI web Trade.

ICICI has transformed itself from the role of a Financial Institution to a

Universal Bank. The company is making constant efforts to take first mover

advantage in the technology-related businesses. In the past, there has been a

considerable amount of influence and direction from the government in ICICI’s

policies. However, of late, under the direction of Mr. K. V. Kamath, ICICI has



quite successfully broken away from direct government interference. Private

participation in equity since inception and its image of a professionally

managed company has enabled ICICI to recruit professional managers and

fresh MBAs from premier institutes consistently. Key appointments rest with

professional managers. ICICI is undoubtedly one of India’s best-managed financial institutions. ICICI’s project loans’ team has considerable depth and

wide experience in project and loan appraisals. The quality of manpower is

very good and ICICI is forging ahead very strongly on its mission to transform

itself from a project-finance / development banking institution to a universal

bank catering to all kinds of needs of both retail and corporate customers. The

company has placed itself in a perfect position to take any benefit accruing in

the Indian Financial Sector because of further technological changes. Its

diversification of business portfolio will also help it to leverage its strength

from one segment to another.

ICICI GROUP

Founded in 1955 at the initiative of the Government of India, the World Bank

and representatives from the Indian Industry, ICICI’s primary goal then was to

facilitate the development of the Indian Industry through project financing.

Today it has graduated into being among the leading financial institutions and

offers almost every service in the gamut of corporate and retail finance. At

present, ICICI commands a position of respect in the global business

community. This trust and confidence is embodied by ICICI becoming the first Indian Company to be listed on the New York Stock Exchange, on

September 22nd, 1999. It is also the first Indian Company to have its accounts

conform to GAAP guidelines. In terms of technology initiatives, the ICICI

Group is recognized as among the first to bring internet banking services, the

first in providing WAP - enabled financial services and one of the first to

introduce web broking in India.



3.2 GROWTH, DEVELOPMENT AND PRESENT STATUS OF THE ORGANIZATION

Infrastructure financing, corporate financing and retail have been the strong

pillars of ICICI's growth. They expect these to remain thrust areas in the future

too. The financial institution sees significant opportunities in the power sector,

and in the rapid de-regulation of the Telecom sector. On the retail side, ICICI

has established a retail franchisee through a physical presence across 42

cities. Its retail thrust has been on the planks of technology enabled low cost

distribution channels like the Internet, Call centers and ATMs.

It occupies the number one position in automobile financing (over 20% of the

market share), number one in credit cards on an incremental basis. It also has

a growing presence in home finance and on-line trading.

ICICI BANK ICICI Bank is a commercial banking outfit set up by the ICICI Group. The

Bank was registered a banking company on January 5 th, 1994 and received

its banking license from the Reserve Bank of India on May 17 th, 1994. The

Bank has an authorized capital of INR 300crore (USD 75.96 million), of which

subscribed and paid-up capital is INR 165 crore (USD 41.78 million). The first

ICICI Bank branch was started in Madras in June 1994. The branches are

fully computerized with state-of-the-art technology and systems. All of them

are fully networked through V-SAT (Satellite) technology. The Bank is

connected to the international SWIFT network since March 1995. ICICI Bank

offers a wide spectrum of domestic and international banking services to

facilitate trade, investment, cross-border business, and treasury and foreign

exchange services. This is in addition to a whole range of deposit services

offered to individuals and corporate bodies. ICICI Bank’s Infinity was the first

Internet banking service in the country, and a prelude to banking in the next

millennium. Currently the Bank has around 150,000 customers.



ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED

With the recent spurt in entrepreneurship in the country, venture capital and

private equity capital financing are fast attaining a role of prominence.

Uniquely positioned to take the Indian entrepreneur further is ICICI Venture

Funds, the wholly owned subsidiary of ICICI, with its keen understanding of

the Indian Financial Markets, entrepreneurial ethos, access to global capital

and a network through influential global alliances. Strong parentage and

affiliates provide ICICI Venture with access to a broad spectrum of financial

and analytical resources. An affiliation with (Trust Company of the West)

provides a platform for networking Indian Companies to global markets and

technology. ICICI Venture Funds currently manages / advises 11 Funds

aggregating US$ 400 million, making it the most significant private equity

investor in the country. The investment experience of ICICI Venture’s

professionals is the foundation its strengths and success in several areas of

investing. ICICI Venture seeks to invest in opportunities where its network

through ICICI and TCW can create value for all involved. ICICI Venture’s

primary investment objective is capital investment through investments by

way of equity or equity-related securities in unlisted companies with significant

growth potential. ICICI Venture’s investments span a broad spectrum of

industries and stages of development, the investment focus being on

Information Technology

Biotechnology and Life Sciences

Media and entertainment

Retail Services

ICICI SECURITIES AND FINANCE COMPANY LIMITED

Formed in 1993 when ICICI’s Merchant Banking Division was spun off into a

new company, I-SEC today are India’s leading Investment Bank and one of

the most significant players in the Indian capital markets. Its client list includes

some of the best known, most respected names in Indian business and

industry, and I-SEC offers them what are probably the widest, most in-depth



range of services in the market, with the highest standards of professionalism.

Backed by a strong distribution network, I-SEC is acknowledged to be at the

forefront of all new developments in the Indian debt market. I-SEC Research

Reports, Compendia, Updates, I-BEX and sovereign Bond Index, have

become industry standards, sought after by finance, business and reputed

publications alike. The Project Finance Group has helped take strategic

projects from the drawing board to financial closure, leveraging the expertise

of parent organization. I-SEC has also executed several assignments in M &

A, including business valuations, spin-offs and mergers, for both domestic and

overseas clients. The range of products offered by i-SEC includes:

Corporate Finance – Mergers and Acquisitions, Equity, Bidding (especially

for Telecom Projects)

Fixed Income – Primary Dealership, Debt Research

Equities – Lend management, Underwriting, Syndication, Private Equity

placement, Sales, Trading, Broking, Sectoral and Company Research I -

SEC

Continues to sustain a steady rate of growth by offering the most

extensive range of services combined with unrivalled standards of

professionalism.

ICICI BROKERAGE SERVICES LIMITED

Set up in March 1995, ICICI Brokerage Services is a 100% subsidiary of I-

SEC. It commenced its securities brokerage activities in February 1996 and is

registered with the National Stock Exchange of India Limited and The Stock

Exchange, Mumbai. We are a joint venture between ICICI and the leading

financial services provider in India, and prudential plc of U.K., one of the finest

Life insurance companies in the world. Together we provide you with an

extensive range of insurance products to suit your various needs at various

life stages. We aim to keep you covered, at every step in life. Their policies

are need-specific and address particular age groups. This means that no



matter where in life you are, we offer specific products to suit your needs for

savings, protection and retirement. Our products can be categorized into the

following:

Saving plans

Protection plans

Retirement plans

ICICI PERSONAL FINANCIAL SERVICES LIMITED

ICICI Personal Financial Services Limited (ICICI PFS), formerly ICICI-Credit,

was one of the first four companies to obtain registration as a Non-Banking

Financial Company (NBFC) from the Reserve Bank of India (RBI) on

September 10, 1997 under the new section 45IA of the Reserve Bank of India

Act, 1934. During the year 1998-99, there was a significant shift in the

Company’s operation from leasing to hire purchase to distribution and

servicing of all rental products for the ICICI Group. It is now a focal point for

marketing and distribution of all rental asset products for ICICI, including auto

loans, consumer durable finance and other financial products. The Company

has thus become part of ICICI’s retail strategy aimed at offering a

comprehensive range of products and services to retail customers. In view of

this reorientation of the business, the name of the Company was changed

from ICICI Credit Corporation to ICICI Personal Financial Services Limited

(ICICI PFS) effective March 22, 1999.

ICICI CAPITAL SERVICES LIMITED

ICICI Capital Services Ltd. was incorporated in the name of SCICI Securities

Ltd. on September 24, 1994 as a wholly owned subsidiary of erstwhile SCICI

Ltd. with the objective of providing stock broking services to the institutional

clients and undertaking activities such as underwriting, primary market

placements & distribution industry & company research etc. After the

amalgamation of SCICI with ICICI effective from April 1, 1996, resulting in the

change of the name. The company is mandated, under review by ICICI, to



carry out on its behalf the retail resource raising activities and to provide front

office services related to all retail and semi retail liability products of ICICI.

The company also operates the network of ICICI Centers being set up by

ICICI. As on date the company has set up 91 centers across the country.

ICICI INFOTECH

ICICI InfoTech is a leading provider of end-to-end IT solutions. We have an in-

depth experience of having worked on varied technologies with leading

corporations worldwide. Our service portfolio includes the following:

IS & IT Consulting

Software Design and Development

Enterprise Application Integration

Value Chain Management Solutions (SCM, CRM etc.)

Application Re-engineering and Management

Knowledge Management Solutions

Embedded System Applications

Technology Incubation, IT-enabled Services & IT Outsourcing

ICICI Capital Ltd.

Its products are

RBI Bonds E-invest (ICICI Direct.com) Fixed Deposits Mutual Funds Bonds Demat Equity IPORBI BONDS:

A bond or a Debenture is basically a loan. Every time you invest in a bond or



debenture, you are lending your money to an issuer who is in need of funds.

Bonds can be issued for specific period of time; the period can range from

short term to a very long time like 20 or 30 years too. Government issues

bonds (Treasury bills and Government securities) for a medium term to very

short term like even for a few weeks. RBI Bonds are marketed through the

ICICI Capital Ltd. it is also known as Infrastructure Bonds of RBI. RBI issues

those bonds (3 or 4 times) in a year.

E - INVEST (ICICIDIRECT.COM):

ICICIDirect.com is a truly online share-trading site. This means that from the

time you punch in a buy or sell trade on your computer to the final settlement

in your account, everything happens completely online. The 3-in-1 e-invest

account integrates your brokerage, bank and one or more depository



day or night.

MUTUAL FUNDS:

Mutual Funds are a pool of money collected from many persons and invested

in tradable securities. The gains or losses arising out of such investments are

distributed among the investors of the fund in proportion to their investments.

In a way, a mutual fund is an agent of the investors on whose behalf, it

manages their funds to enhance the returns and reduce their investments

through a careful selection of securities amongst several sectors of industries,

companies and products. Achieving such a selection is normally beyond the

means of an individual investor. All Mutual Funds are open-ended ones.

Customers are Franklin Templeton Investments

Birla Mutual fund



Kothari Pioneer

Alliance Capital

Sun F & C Mutual Fund

Kotak Mahindra Mutual Fund

Prudential ICICI Mutual Fund

ICICI BONDS:

A bond or a debenture is basically a loan. Every time you invest in a bond or

debenture, you are lending money to an issuer who is in need of funds. Bonds

can be issued for specific period of time; the period can range from short term

to a very long like 20 or 30 years too. ICICI Bonds are generally for periods

upwards of one year. ICICI target the retail market for subscription to their

bonds issue. Corporate issuer captures major portion of the small investors in

ICICI Bonds.

DEMAT:



over 15 years. In India, the first depository commenced operations a decade

back and is relatively new. The Indian Financial Markets is in need of both

scrip-based trade, but the investing community, which is used to scrip-based

and scrip less trade, is bound to take some time to accept the latter. The scrip

less trading, till now a domain of the western world, institutional investors and

GDR holders is now mandatory even for small investors. All those who hold






EQUITY IPO:

ICICI Capital Service Ltd., also undertake the equity IPO for other corporate

products. It looks after all the transactions related to equity IPO in the market.



FIXED DEPOSITS: ICICI FIXED DEPOSITS

ICICI Ltd. issues the Fixed Deposits to a large number of customers. FDs are

rated by the rating agencies like CARE, ICRA and etc., Those FD are highly

safe, Tax benefit under section 80L, No TDS on interest up to Rs.5000 in a

Financial Year and Premature withdrawal facility.

Services offered by ICICI Capital Services Limited

INSTITUTIONAL INVESTORS:

As the first time Depository Participant of National Securities Depository

Limited (NSDL), services offered by ICICI in respect of securities held in

electronic form include;

DEMATERIALIZATION:

Gets clients’ physical certificates converted into electronic balances

maintained in its account with NSDL.

REMATERIALIZATION:

Assists in converting the electronic holding into physical certificates through

the process of Rematerialization as and when desired by the client.

SETTLEMENT:

Offers settlement services involving book entry transfers for both on-market

and off-market trades carried out by clients.

RECORD KEEPING:

Provides a transaction statement as well as holding statement to clients at

periodic intervals.



PLEDGING:

Completes various formalities relating to pledging of securities held in

dematerialized form with any institution based on the instructions received

from the clients.

INDIVIDUAL INVESTORS:

ICICI Capital Services Ltd. offers the aforementioned services to individual

investors as well.

SUBSIDIARY GENERAL LEDGER A / C (SGL):

Offers services to clients dealing in Government securities through the SGL

A/C. besides holding the securities, ICICI Capital Services Ltd.

Provides records update based on the transactions made by the clients.

Collects and credits the benefits and proceeds from sale to the clients’

account; and

Supplies periodical reports on the transactions and holding of the clients.

TRADING:

Next function activates when an investor buys or sells in the market.

Buying:

1. An investor gets order executed and makes payment to the broker.

2. Investor instructs his Depository Participant to expect credit on settlement

day. Broker instructs his DP to debit his Clearing Member account on

settlement day.

3. Before settlement day Broker makes payment to clearinghouse through

Clearing Bank.



4. On settlement day Clearing house releases shares to broker’s Clearing

Member account which is then transferred to investors account through

NSDL (National Securities Depository Limited). Investor gets credit in his

account.

SELLING:

1. An investor gets order executed.

2. Investor instructs his Depository Participant to debit his account with

immediate effect. The shares move from investors account to Brokers

Clearing Member account via NSDL. A Broker clearing member accounts

is credited.

3. Before settlement day broker transfers shares from his clearing member

account to Clearinghouse via NSDL. His account is debited.

4. On settlement day Broker receives payment from clearing house which he

passes on to the investor.

ICICIDirect.com

ICICIDirect.com is a truly online share-trading site. This means that from the

time you punch in a buy or sell trade on your computer to the final settlement

in your account, everything happens completely online. The 3-in-1 e-invest

account integrates your brokerage, bank and one or more depository



day…or night.

ADVANTAGES OF ICICIDIRECT.COM

Its hassle free: No more tracking the settlement cycles or waiting



cheques for cash settlement.

It’s easy: You don’t need to be an Internet guru or a financial genius to

trade in shares online.

It’s faster: No phone calls, on paperwork, any time lags, everything at the

click of the mouse.

It’s secure: Internationally benchmarked 128-bit encryption, making all

your transaction absolutely safe.

It’s from ICICI: An organization that millions of Indian trust.

OTHER FEATURES:

Trade shares on margin for up to 3 times with brokerages at very low

percentage.

With BARRA Global Estimates glance through the recommendations of

leading analysts.

Through our markets section, track the movement of indices and stocks

along with the news that affect shares.

Table No. 3.1 Different types of accounts in ICICI Direct.Com

Bank A/c Online trading A/c Demat A/c

Savings Bank A/c With 5 combinations

TWO TYPES: Cash

Margin



CASH:

While buy or sell transactions in cash segment are settled by delivery unless

squared off within the same settlement.

MARGIN:

Normally to buy shares, an investor will have to place (ensure availability of

limit) 100% of the order value, while to sell shares, investors needs to have

shares in his demat account. However, margins are blocked only to safeguard

against any adverse price movement. With margin trading, investor can

leverage on his trading limit by taking buy/sell positions much more than what

he could have been taken in cash (delivery) segment.

In margin trading the investor can buy/sell positions in stock(s) with the

intention of squaring off the position within the same settlement cycle. If

during the course of the settlement cycle, the price moves in investor’s favour

(rise in case of a buy position or fall in case of a sell position) the investors

makes a profit. In case the price movement is adverse, the investor incurs a

loss. However, the investor also has the option to take/give delivery of buy/sell

position respectively if he has sufficient cash or securities to do so.

DIFFERENCE BETWEEN MARGIN AND CASH SEGMENT

While buy/sell transaction in cash segment are settled by delivery unless

squared off within in the same settlement, buy/sell transactions in the Margin

Segment are squared off unless converted into delivery (cash segment). All

margin positions have to be closed out at specified time mention on previous

day of the last trading day of the settlement.

Share transaction: Only National Stock Exchange stocks are traded.

Normal Settlement: That day only.



Rolling Settlement: T+2 day’s settlement of shares.

Major Competitors: HDFC.com, Indiabull.com, Euitymaster.com, 5paise.com

E-INVEST ACCOUNT OPENING CHARGES: RS 750

Table No. 3.2 Different Charges of ICICI Direct.Com

Total Turnover (Volume of

Transaction) Slabs

Delivery Trades

Second Leg of Squared Off

Trades

Effective Commission per leg

for squared off trades

Less than Rs. 10

lacs per quarter0.85% Nil 0.425%

Rs. 10 lacs - Rs.

50lacs per quarter0.60% Nil 0.30%

Rs. 50lacs - Rs. 1

cores per quarter0.50% Nil 0.25

Rs 1 crore+ 0.40% Nil 0.20%

COMPUTATION OF COMMISSION:

While the first leg of transaction would be charged commission @ 0.85%

(subject to the minimum of Rs. 25 per trade as mentioned above) initially on

the transaction date, an appropriate rebate would be calculated at the end of

each quarter based on the total value of transaction and shall be credited to

your account.

No rebate shall be calculated on transactions, which have not attracted

commission in the first place being in the nature of square up trades. Rebate

shall also computed as the respective slab (0.25% to 0.45% based on

turnover slab) on the transactions, which have attracted minimum commission

of Rs. 25 per trade.



MARGIN SEGMENT COMMISSION SCHEDULE:

Table No. 3.3 Margin Segment Commission in various turnover slabs

Total Turnover (Volume of Transaction)

Slabs

Each leg

Up to Rs 1 cr per quarter 0.15%

Rs 1 cr+ per quarter 0.10%

The minimum value of the trade that would be accepted be Rs 1000/- and the

minimum commission would be Rs 15/- per trade inclusive service taxes and

postage of contract note.

COMPUTATION OF COMMISSION:

As in the cash segment, the trades would be charged commission as

mentioned above on the transaction date, an appropriate rebate would be

calculated at the end of each quarter based on the total value of transaction

and shall be credited to your account.

CONVERSION OF MARGIN POSITION TO DELIVERY:

Any margin position converted to delivery shall attract additional commission

for the difference in brokerage on cash trades and margin trades. For the

purpose of calculating rebate on the basis of total turnover, such conversions

would be considered as the volume in the cash segment and not considered

in the margin segment.

FUTURE PROSPECTS AND PLANS OF THE ORGANIZATION

For ICICI the past half has been a trying period more so because of the

adverse environmental conditions such as the depressed equity markets and



the volatile currency markets. However, its retail thrust and a perceptible shift

in financing from manufacturing projects to corporate finance will put it in good

stead for the quarters to come. Its growing importance in the telecom and

infrastructural sectors, which have huge potential, will be a key driver of

growth for the future

3.3 ORGANIZATIONAL STRUCTURE:

STRUCTURE OF DEPOSITORY PARTICIPANT:

A depository is an organization where the securities of the shareholder are

held in electronic form. In order to reach out the general investor depository

goes through its intermediaries called the Depository Participant. The

structure of this Depository Participant System has mainly two types of

accounts:

The Beneficiary Accounts

Clearing Member’s Clearing Accounts

BENEFICIARY ACCOUNTS:

These are the accounts of investors, where their securities are held in

electronic form. The account opened by investor with DP is a beneficiary.

The balances in BENEFICIARY ACCOUNT are divided into the following sub

accounts:

Shares under Free Accounts can be transferred freely.

Lock-in Accounts hold shares under lock-in period (say promoters quota)

which cannot be sold (till the lock-in period is over, after which they move to

free account).

Pending Demat Account: Securities waiting credit for dematerialization

from the company/ registrar are held in the pending demat account.



Pending Remat Account: Securities sent for Rematerialization is held in

the remat account till the company / registrar confirms electronically that

physical securities have been issued.

Pledged Account: Securities pledged to the other Beneficiaries are held

in the pledged account.

Clearing Members’ Clearing Account:

Any trade done on the Exchange, in a particular settlement, has to be settled

through the Clearing Member (through whom the trade is done). For this

purpose there is a “Clearing Account” of Clearing Member (i.e. broker). He

collects, in this account; securities sold by different clients and deliver it to the

Exchange. Similarly, in the case of purchases, he receives securities from

NSDL/ Clearing Corporation in this Clearing account and then disburses the

same to his clients (to their beneficiary account).

The Clearing Members’ Clearing Account has sub-account like –

Pool Account – where securities are received from various sources are

pooled and held.

Delivery Account: from where NSDL takes the securities for pay-in (the

clearing member moves the securities from pool account to the extent to

his net obligation to the Clearing Corporation).

Receipt Account: where securities are received from NSDL after payout.

Securities are moved to pool account automatically from here.

Balances in Clearing Member account are held for each settlement and

market type, separately. NSDL takes/ gives the securities from/ to broker on

the basis of instructions from exchange/ Clearing Corporation.



3.4 FUNCTIONS OF THE ORGANIZATION:

SOURCES OF GETTING SECURITIES IN YOUR OPENED ACCOUNT:

There are three main sources of getting securities in your account:

Dematerialization

Subscribing to primary market issues (New issues, Rights issue)

Buying the securities through the secondary market.

These securities held in your account in electronic form are fungible; i.e.

they do not bear any distinguishing feature (Like Certificate Numbers,

DNRs etc)

PROCEDURE OF DEMATERIALIZATION:

The procedure is as follows:

You can check with us for the list of securities eligible for demats. Certificate

should stands in account holder’s name (viz., market purchase along with

transfer deeds cannot be dematerialized)

Once the certificates for demat are submitted to Depository Participant, they

are defaced on the face of the certificate by writing ‘SUBMITTED FOR

DEMATERIALIZATION’. The certificate should also be punched on the

Company name, but in such a manner that the company name is clearly

identifiable. The account holder before submitting his certificates for demats

has to ensure the following:

Certificate should be standing in the exact name in which the account is

opened. In case there are joint account holders, all the names have to tally

and the names should be in the same order in which account is opened.

The ISIN of the security enclosed and the ISIN mentioned on the form are

the same.

The DFR is duly signed by you along with joint holders(if any)



If part of the certificate issued for demat are looked-in, a separate DRF is

required for the same. Also securities look-in for different reasons and for

different periods should be submitted under different DRF’s.

Certificates are not mutilated.

The Depository Participant will issue an acknowledgement after verifying

the forms and securities.

They record your request, generate Dematerialization Request Number

(DRN) and forward the securities to company / registrar.

Registrar will check the certificates and if found in order, will inform the

DP, upon which the account will be credited.

In case of reject, Registrar will forward necessary documents to

Depository Participant.

REGISTRAR MAY REJECT THE REQUEST FOR THE FOLLOWING REASONS:

Specimen signature on DRF differs from signature recorded with registrar/

Transfer agent.

For any other reason like injunction order, duplicate certificates issued etc.

The issuer/ R&T Agent is supposed to inform the DP of the acceptance/

rejection within 15 days of receipt of request.

Rejects will be returned to the account holder with the covering letter

explaining the reason of reject.

Primary Issue: In case a primary issue, securities in electronic can be



obtained ab-initio:

While applying for a primary issue, you have to mention the following in

your application form, refer annexure

Your wish to receive securities in electronic form.

Your Depository Participant’s Id.

Your account number (client Id)

If any allotment is made to you, the issuer/ Registrar notifies the quantity

allotted along with client Ids and DP Ids to NSDL.

The NSDL will generate the allotment of securities on the date specified by

the issuer/ Registrar.

The account with the Depository Participant will be credited with allotted

securities.

Holding statement sent to account holder by DP’s will reflect the updated

holding with credit.

REMATERIALIZATION:

It is the process by which you can get your electronic holdings converted into

physical certificates. The steps involved are:

Submit to the Depository Participant the duly filled-in Rematerialization

request form. Kindly ensure the holding of that particular ISIN.

The Depository Participant will verify the form, check for signatures and

holding and forward the form to the company registrar. They will also

inform the registrar about the request electronically.

Securities are moved from the holder’s free account to pending remat

account.

Issuer/ Registrar will accept the Rematerialization request, print and



dispatch the certificates to the holder and will also send electronic

confirmation to the Depository Participant.

STEPS REGARDING SETTLEMENT OF YOUR TRADES:

For the knowing how to settle the trades, I have taken 3 types of transaction

most commonly used, they are:

1. Settlement sale

2. Settlement purchase

3. Off-market

The procedure for the above three transactions are as follows:

Before selling, please ensure that you have sufficient holding of that security

(that ISIN) in your free account and not in demat, remat, blocked, locked

account. Securities can not be moved, if you may freeze your account.

You should precisely tell your broker the security you want to deal in while

giving buy or sell order. E.g.: in case you have only reliance petrochem

securities and if you instruct your broker to sell Reliance Petroleum

securities, you may be able to settle your trade.

As of now, in electronic segment, trades are settled on rolling basis. Every

day is treated as fresh settlement and trades are settled on T+2 day’s

basis (excluding Saturday and Sunday). However settlement date (i.e.

Pay-in/ Payout date) may be alerted in unusual in circumstances (E.g. In

case of Holidays). You should check with your broker exact pay-in/ payout

day. Your broker may ask you to move the securities to his account after

pay-in (in case of sales) or may wish to transfer the securities to your

account after the payout (purchase). In such cases, execution date may be

different than the settlement date. However, you shall note that securities

can be moved to broker’s clearing account only till pay-in deadline date

and time. If you do not move the securities to your broker’s account by this



deadline, broker in turn may fail to fulfill his obligation to the exchange and

the securities may get auctioned.

Settlement Trade (or Market Trade) is a trade in a particular settlement

and market type on the exchange. As of now, there are (apart from auction

settlement) three settlement types on NSE (i.e. Rolling Market Lot, Rolling

Odd Lot and Physical) and two on BSE (Rolling Market Lot and Physical).

You shall get from your broker, precisely, the settlement number and

settlement type in which your securities are traded. 9798 (no.) e.g.

9798011 and NSE prefix settlement number on BSE by 1998(no.) e.g.

1998011. Settlement numbers for every trading day (trading period) are

decided by respective exchanges in advance.

If the holders do not get the securities on payout, he may get it probably, in

auction settlement (generally after three days) or you may get square off

money from your broker. Your broker will make these details available.

If securities moves from one beneficiary account to other beneficiary

account, it is treated as off market trade and attracts charges applicable

for off market trades. For trading, one normally transacts through broker at

the exchange, the holder will be delivering / receiving the securities to /

from the broker’s clearing account. As mentioned above, these are called

Settlement / Market trades.

In a depository system, only securities movement takes place. Funds part

will have to be settled by the holder with the concerned broker as is done

in paper segment at present.

Transaction instructions are matched on the basis of ISIN codes, counter-

party codes (Client / CM Ids), counter-party DP’s code, CM-BP Ids,

quantity execution date, settlement number and market type. Hence, the

holder is requested to mention all this information completely and

correctly. Once this is done the holder must send the instructions to the

Depository Participant.



The instructions will be also fail in case the holder does not have sufficient

holdings.

In case of joint account, any instruction (transaction, demat, remat, etc.) or

any letter has to be signed by the holder along with joint holders in the

same order in which the account is held.

After this the account opener will be getting the holding statement at

regular intervals provided he is holding any securities.

If the securities are delivered to a member with some other DP, the shares

will move into holder’s blocked account until the transaction are matched

and then out of blocked account if successful.

Lastly, as mentioned earlier, the beneficiary can give the DP standing

instruction to receive the securities in his account.

Rights and Obligation of Depositories, Participant, Issuers and Beneficial Owners:

AGREEMENT BETWEEN DEPOSITORY AND PARTICIPANT:

A depository shall enter into an agreement with one or more participants

as its agent.

Every agreement under sub-section (1) shall be in such form as may be

specified by the by laws.

SERVICES OF DEPOSITORY:

Any person, through a participant may enter into an agreement, in such form

as may be specified by the bylaws, with any depository for availing its



services.

SURRENDER OF CERTIFICATE OF SECURITY:

Any person who has entered into an agreement under section 5 shall

surrender the certificate of the security, for which he seeks to avail the

services of depository, to the issuer in such manner as may be specified

by the regulations.

The issuer, on receipt of certificate of security under sub-section (1), shall

cancel the certificate of security and substitute in its records the name of

the depository as registered owner in respect owner in respect of that

security and inform the depository accordingly.

A depository shall, on receipt of information under sub-section (2), enter

the name of the referred in sub-section (1) in its records, as the beneficial

owner.

REGISTRATION OF TRANSFER OF SECURITIES WITH DEPOSITORY:

Every depository shall, on receipt of intimation from a participant, register

the transfer of security in the name of the transferee.

If a beneficial owner or a transferee of any security seeks to have custody

of such security the depository shall inform the issuer accordingly.

OPTIONS TO RECEIVE SECURITY CERTIFICATE OR HOLD SECURITIES WITH DEPOSITORY:

Every person subscribing to securities to offer by an issuer shall have the

option either to receive the security certificates or hold securities with a

depository.

Where a person opts to hold a security with a depository, the issuer shall

intimate such depository the details of allotments of the security, and on

receipt of such information the depository shall enter in its record the



names of the allottee as the beneficial owner of that security.

SECURITIES IN DEPOSITORIES TO BE IN FUNGIBLE FORM:

All securities held by a depository shall be dematerialized and shall be in a

fungible form.

Nothing contained in section 153,153A, 153B, 187B, 187C and 372 of the

Companies Act, 1956 (1 to 1956) shall apply to the securities held by a

depository on behalf of the beneficial owners.

RIGHTS OF DEPOSITORY AND BENEFICIAL OWNER

Notwithstanding anything contained in any other law for the time being in

force, a depository shall be deemed to be the registered owner for the

purpose of effecting transfer of ownership of security on behalf of a

beneficial owner.

Save as otherwise provided in sub-section (1), the depository as a

registered owner shall nit have any voting rights or any other rights in

respect of securities held by it.

The beneficial owner shall be entitled to all the rights and benefits and be

subjected to all the liabilities in respect of his securities held by a

depository.

REGISTER OF BENEFICIAL OWNER

Every depository shall maintain a register or index of beneficial owner in

the manner provided section 150, section 151, section 152 of the

Companies Act, 1956 (1 to 1956).

PLEDGE OF HYPOTHECATION OF SECURITIES HELD IN A DEPOSITORY



Subject to such regulations and bylaws, as may be made in this behalf, a

beneficial owner may with the previous approval of the depository create

a pledge or hypothecation in respect of a security owned by him through

a depository.

Every beneficial owner shall give intimation of such pledge or

hypothecation to the depository and such depository shall thereupon

make entries in its records accordingly.

Any entry in the records of a depository under sub-section (2) shall be

evidence of a pledge or hypothecation.

FURNISHING OF INFORMATION AND RECORDS BY DEPOSITORY AND ISSUER

Every depository shall furnish to the issuer information about the transfer

of securities in the name of beneficial owner at such intervals and in such

manner as may be specified by the bylaws.

Every issuer shall make available to the depository copies of the relevant

records in respect of securities held by such depository.

OPTION TO OPT FOR, IN RESPECT OF ANY SECURITY

If a beneficial owner seeks to opt out of depository in respect of any

security he shall inform the depository accordingly.

The depository shall on receipt of intimation under sub-section (1) make

appropriate entries in its record and shall inform the issuer.

Every issuer shall within thirty days of the receipt of intimation from the

depository and on fulfillment of such conditions and on payment of such

fees as may be specified by the regulation issue the certificate of



securities to the beneficial owner or the transferee as the case may be.

BANKERS’ BOOKS EVIDENCE ACT TO APPLY TO DEPOSITORIES

The Bankers’ Book Evidence Act, 1891(18 to 1891), shall apply in relation

to a depository as if it were a bank as defined in section 2 of that Act.

DEPOSITORIES TO INDEMNIFY LOSS IN CERTAIN CASES

Without prejudice to the provisions of any other for the time being in force,

any loss caused to the beneficial owner due to the negligence of the

depository or the participant, the depository shall indemnify owner.

Where the depository indemnifies the loss due to the negligence of the

participant under sub-section (1), the depository shall have the right

under sub-section shall have the right to recover the same from such

participant.

Rights and obligations of depositories

Subject to th4 provision of this Ordinance the rights and obligations of the

depositories, participant and the issuers whose securities are dealt with

by a depository shall be specified by the regulations.

The eligibility criteria for admission of securities into the depository shall be

specified by the regulations.

TRADING:

You can trade through any broker of your choice registered with the stock

exchanges connected with NSDL but will have to provide the details of your

account with the DP. The moneys would receive from the broker/ paid to the



broker in the same fashion as done in case of buying/ selling of physical

shares. The DP will provide you a statement updated every fortnight giving

detail of your holdings.

Shares bought in the electronic form can be pledged/ hypothecated by

making application to the DP in a prescribed form. For the purpose

calculation of capital gains tax, the cost of acquisition of shares would be

determined on the principle of first in first out.

The process of opening an account with a depository participant is similar to

the opening of bank account. Photographs, introduction and signing the

prescribed agreement form are some of the requirements.

If there are any discrepancies in your holding statement o pass book, you

can contact your DP. If the problem cannot be resolved at DP’s end, you can

approach NSDL. There is absolutely no restriction to the number of DP’s you

can open accounts with. Opening an account with DP is very similar to

opening a bank account. Just as you can have savings or current account

with more than one bank, you can open accounts with more than one DP.

There is no minimum balance prescribed form your account with DP. Infact,

you could have nil securities in your account with a DP.

With the security that a person have with respect to proof of his holding,

upon opening an account with DP indemnifies you for any misuse of your

holdings. NSDL will also ensure that the interests of the investors are

protected. Essentially grievances against the DP will be resolved by NSDL.

Besides, every transaction in your account will have to be authorized by you.

When any corporate event such as rights, bonus or dividend is announced

for a particular security, the depository will give details of the clients having

electronic holdings of that security as of record date/ book closure to the

registrar. The registrar will then calculate the corporate benefits due to all

shareholders. The registrar will do the disbursement of cash like dividend or

interest whereas the depository will do distribution of securities entitlements



based on information provided by the registrar.

The investor retains the choice of receiving the corporate benefits in physical

or electronic form. For discrepancies in corporate benefits in the form of

securities, you can approach your DP who will then approach the registrar. In

case of discrepancies in cash benefits, you will have to the registrar directly.

As long as shareholding in demat form is not made compulsory by a

suitable legislation, there will be a large number of shareholders that will

opt to hold their equity in scrip form. Even in US, where dematerialization

of shares is in practice for over 25 years, many investors prefer to hold

their equity in scrip form. In India, the number is likely to be higher.

Therefore, the possibility of counterfeit or fake shares being brought to

the market cannot be ruled out.

Companies issue duplicate share certificates in lieu of the original reported

lost stolen etc. They publish the particulars of such originals, which are

cancelled, in newspapers and also make this information available to

brokers. But the possibility of a broker introducing such shares in the

market cannot be ruled out.

Also, it is possible that the canceled shares are presented to the company

for dematerialization, and in the absence of proper checks and controls,

which will make it unique, non-duplicate and non-copyable, these get

dematted. Once dematted a share, a share loses its individual identity

and the company may not be in a position to reverse its action.

Counterfeiting of shares and introduction them in the market is relatively

easy in the absence of duplication-proof security features and where the

brokers do not have the means by which they can check these features.

This is particularly relevant in case of companies that are old and have

issued shares from time to time.

DEMAT BENEFITS



Freedom from worries over loss of certificates through theft, mutilation etc.

Reduction of paperwork when shares are sold.

No delays or hassles in transfer of shares to your name when purchased.

Saving stamp duty charges.

No requirement of filling up of transfer deeds and lodging shares for

transfer.

No bad delivery of shares.

No loss of certificates in transit.

No courier/ postal charges.

Faster payment in the case of sales of shares.

No scope for forged shares.

There is, however, no differences between demat shares and physical

shares as far as the beneficial interests of the ownership of securities are

concerned. The owner is entitled to exactly the same benefits of ownership

of a security no matter in what form it is maintained.

ADVANTAGES OF HOLDING SHARES IN ELECTRONIC FORM

Holding securities gives some far-reaching advantages to the investors,

which hitherto were not available. Some of the advantages of holding

securities in electronic form are enumerated as follows:

There is no risk of bad deliveries, which has plagued the markets time and

again.

There is no risk of theft, mutilation or forgery.

There is no stamp duty on transfer.

Their transaction costs are drastically reduced.

The securities can be transferred almost immediately from one account to

another account.

The paper work involved in buying, selling and transfer are considerably

reduced.

No separate custodian required as the shares are held by NSDL itself.

No risk of loss of shares certificates in transit.



All non-cash corporate benefits i.e., Rights & Bonuses can also be

obtained in electronic form automatically.

Freezing of accounts is possible for any desired time duration.

It can be inferred easily from above that the paperless trading is a boon for

large investors and traders who buy/ sell and hold large chunk of securities

in their name. It is also widely known that the hassles of transferring physical

shares, problems, problems of custody, bad delivery and fake certificates

etc. have been keeping many FIIs as well as NRIs away from Indian stock

markets.

3.5 FUTURE SCOPE

The question now arises as to how to we touch the moon i.e., complete

paperless trading. A few suggestions are given below:

It should be recalled that government had given many incentives to the

US-64 scheme during the initial years to spread the equity cult in India.

Similar incentives should be introduced for small investors to trade into

the demat share.

All FIIs, FIs, large NRI and domestic investors should mandatory trade

among themselves sin demat form. The same can be achie4ved by

making it mandatory to trade in securities above a certain quantity of

shares or certain value of shares per transaction. The process can start

with few securities and their number can then be enlarged subsequently.

The institutions are found reluctant to buy shares in physical form due to

the stamp duty involved. It is opined that the charges of stamp duty in

securities transfer have become obsolete concept. It is suggested that

the stamp duty should be reimbursed to the investors if and when they

convert there holding into demat form.



The dematerialization of shares should not be permitted.

The cost of holding shares into demat form must be brought down

particularly for investors so that they too, see an advantage in dealing in

demat shares.

All stock exchanges should be linked to the depository as fast as possible.

The banks and other brokers should be encouraged to act as depository

participants.

NSE brokers and othee4 sub-brokers having presence in smaller towns

should be permitted to function as depository participants.

Dematerialization charges should be abolished and government should

subsidize the costs involved to NSDL.

The disparity of settlement period between physical and demat segment

should be removed. The same can be achieved by acceding to the

demand of DPs to introduce a rolling settlement period in physical

segment of shares.

All the above measures should be backed by a mighty effort I the

awareness campaign, which should involve the government, NSDL, DPs,

FIs, Brokers and investors alike.

DEMAT PROCESS

A request form together with the share certificates desired to be

dematerialized is given to the Depository Participant. He sends the request

along with the share certificates to the company/ registrars through National

Security Depository Limited for confirmation of dematerialization to NSDL.

NSDL then confirms the dematerialization of shares to your DP to credit the



holding of shares in your account electronically. This takes about 15 days

from the date of request. Electronic holdings can be converted back into

certificates, if so desired, in a similar fashion as that for dematerialization.


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