Question

Write any four benefits depositary.

Hint:

Remember: Depository benefits include elimination of physical certificates, instant transfer, no lock-in period, and reduced transaction costs. It makes investing safer, faster, and cheaper.

Answer 1

Step 1: Introduction to Depository.
A depository is an institution that holds securities (like shares, debentures, bonds) in electronic form (dematerialized form) on behalf of investors. In India, NSDL and CDSL are the two depositories.

Step 2: Four benefits of depository system.

Elimination of Physical Certificates:

• Shares are held in electronic form, eliminating the need for physical share certificates
• No risk of loss, theft, mutilation, or forgery of certificates
• No need for safe custody arrangements
• Easy to maintain and manage holdings

Instant Transfer and Settlement:

• Transfer of shares happens electronically within seconds
• No need for physical transfer deeds or stamp duty
• T+1 settlement cycle ensures quick completion of transactions
• No risk of bad delivery due to signature mismatch or other issues

No "Lock-in" Period for Transfer:

• In physical form, shares could not be transferred immediately after allotment
• In depository mode, shares can be transferred immediately
• Provides liquidity to investors

Reduction in Transaction Costs:

• No stamp duty on transfer of demat shares
• No handling charges for physical certificates
• Lower brokerage due to electronic settlement
• Reduced paperwork and administrative costs

Step 3: Additional benefits (for reference).

• Corporate actions: Automatic credit of bonuses, rights, dividends directly into investor's account
• Nomination facility: Easy nomination and transmission of securities
• Pledge/hypothecation: Easy pledging of shares for loans
• Access to multiple markets: Can hold securities from different exchanges in single account
• Statements: Regular statements of holdings provided