Q.Explain the benefits of the depository system to companies and to the capital market as a whole.

The depository system lets investors hold securities electronically. Its advantages to an investor include freedom from the risks of physical certificates, faster and cheaper transfers, no bad deliveries, and easy consolidated holding with automatic credit of corporate benefits.

A depository is an organisation that holds an investor's securities in electronic form and enables their transfer through book entries. In India, NSDL and CDSL are the two depositories. When shares are dematerialised, physical certificates are replaced by entries in a demat account, which offers the investor many benefits.

…

The statement is justified. Under the depository system shares exist electronically and change hands through book entries, so transfer is instant, paperless and free of the delays, stamp duty and bad-delivery problems of physical certificates.

A depository holds an investor's securities in electronic form and enables transfer through book entries in demat accounts. This is in sharp contrast to the earlier physical system, where transfer of shares was slow and troublesome.

…

Because securities are held electronically in a demat account, an investor is freed from the dangers and delays of paper certificates and enjoys safe, quick, cheap and convenient handling of shares.

Under the depository system, an investor's securities are held in electronic form in a demat account maintained through a Depository Participant. This does away with physical certificates and gives the investor many benefits.

Advantages of the depository system to an investor:

• Safety from risks of physical certificates: There is no fear of loss, theft, mutilation, forgery or fake certificates, because holdings exist only in electronic form.
• Easy and quick transfer of securities: Shares are transferred electronically through simple book entries, and no stamp duty is payable on transfer of dematerialised securities, which saves cost and time.
• Reduced paperwork and faster settlement: Buying and selling need much less documentation, and settlement of transactions on the stock exchange becomes quicker and smoother. …

The depository system lets investors hold securities electronically in a demat account, which removes the risks and delays of paper certificates. For an investor it means safety, faster transfers, lower costs and convenience.

A depository (such as NSDL or CDSL) holds an investor's securities in electronic form through a Depository Participant (DP). This system replaces physical certificates and brings many advantages to investors:

1. Safety of securities: All the risks tied to physical certificates — loss, theft, forgery, mutilation and damage — are eliminated because the securities are held in electronic form.

2. Easy and quick transfer: Transfer of securities is done electronically through the demat account, which is far faster than the lengthy process of physical transfer, reducing settlement time.

3. No stamp duty on transfer: Transfer of dematerialised securities does not attract stamp duty, which reduces the cost of transactions for the investor.

   …

The statement is False. Demat shares save time; they are handled instantly by electronic book entry.

The whole purpose of the depository (demat) system is to remove the difficulties of holding shares in physical form. Earlier, transferring physical certificates involved filling transfer deeds, posting documents, long delays, risk of loss, theft, forgery and bad deliveries, all of which were very time consuming.

Under the demat system, shares are held electronically in a demat account with a depository (NSDL or CDSL) through a Depository Participant. When shares are bought or sold, they are simply credited to or debited from the account by book entry, much like money in a bank account. This makes transactions fast, safe and paperless, and settlement takes place quickly.

…