BENEFITS OF DEPOSITORY SYSTEMThough the Depository System is optional and it is left to the Investor to decide
whether he wants the Securities to be dematerialized or not, the number of Accounts with
NSDL is increasing day by day. Large quantity of securities is being dematerialized by
mutual fund, foreign investors and domestic investors because of the advantages of
holding Shares in electronic Form.
1. A Depository first and foremost ensures that only preverified assets with
good title are exchanged in the process of trading. So and investor is
assured of good quality of assets. Besides this, the problems of bad
deliveries and all risks associated with physical certificates, such as
loss, theft, mutilation, etc., would be eliminated.- Electronic transaction of securities eliminates the time consuming paper
work involving Certificates and Transfer Deed. - Instant transfer of securities due to quick processing enables one to get
dividend, right and bonus without delay. - The transaction costs are drastically reduced because of no stamp duty on
transfer. - No problem of odd lots hereafter the marketable lot in depository is fixed
as 1 share. - All non-cash corporate benefits, i.e. rights and bonuses can also be
obtained in electronic form automatically. - As a Security measure, the Account Holder can totally freeze his Account
for any desired time duration. - Loans against pledge or hypothecation of dematerialized share can be
borrowed at a lower interest rate. - Depository makes it possible for Investors to be able to deliver shares in
any part of the Country without exposing themselves to the risk and cost
of transportation. Intermediaries will be benefited from enhanced liquidity,
safety and turnover on stock market, improved cash flows from not having
funds tied up for long periods, elimination of forgery and counterfeit with
attendant reduction in settlement risk from bad deliveries.
This system will also help Company Management to maintain and update
information about shareholding pattern of Company. The issue cost will also be
drastically reduced because of dematerialization of shares. It can be inferred that
paperless trading is a boon not only for investors and brokers, but other
intermediaries and Company Management will also be benefited.PROBLEMS OF DEPOSITORY SYSTEMDespite the various benefits the Depository System offers, Investor especially the
retail investor is shy of Demat trading. In order to provide an investor friendly