State benefits of the depository to Investors. - Secretarial Practice

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Answer in Brief

State benefits of the depository to Investors.

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Solution

The benefits of the depository to the Investors are:

  1. Elimination of Risk: All risks associated with physical certificates like delays. lost, theft, mutilation, bad deliveries, etc., are totally eliminated.
  2. Safety: It is the safest and most secure way of holding securities. The entire system functions under the Depository Act and is monitored by SEBI., e.g. The Investor can keep his account in a 'Freeze/Lock' mode to avoid/prevent unexpected debit or credit or both by giving instructions to the DP.
  3. Easy Transfer of Shares:
    1. Efforts in filling transfer forms and lodging the documents are eliminated.
    2. Also the stamp duty levied on the transfer of physical shares is not applicable.
    3. Processing time in the transfer of securities is reduced and neither the securities nor the cash is tied/held up for an unnecessarily long time.
  4. Updates and Intimation: The investor is provided with the status of the holdings and transactions by DP and occasionally by the Depository too.
  5. Security against Loan: Dematerialised securities are preferred by banks and financial institutions as security against loans.
  6. No concept of 'Lots': The system of odd and even lots stands abolished. The market lot is one share for dematerialized securities.
  7. Nomination Facility: Individual Investors can avail of the nomination facility. This simplifies the process in the event of the death of the investor.
  8. Automatic Credit: The account of the investor is automatically credited/debited in case of a change initiated by the company which impacts the securities. This is called 'Corporate Action'. A few examples which can be termed Corporate Action are Payment of Dividends, Issue of Bonus Shares, Offering of Rights Shares, Early Redemption of Debentures, Mergers, and Acquisitions. etc.
Concept: Depository System
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2023-2024 (March) Model set 1 by shaalaa.com

RELATED QUESTIONS

Select the correct answer from the options given below and rewrite the statement.

______ is the institute which facilitates electronic holding of securities.


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India has a ______ depository system.


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Group ‘A' Group ‘B'
a) Bad Delivery 1) 1956
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e) CDSL 5) The Issuer Company.
f) Depository 6) Problem faced in physical mode.
g) Beneficial owner 7) A 10 digit number/code.
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  9) First Depository in the world.
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  11) Problem faced in electronic mode.
  12) 1996
  13) Government Organisation.
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This mode of holding securities may result in loss and theft of certificates.


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____________ DP.


Answer in one sentence.

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Correct the underlined word and rewrite the following sentence.

Allotment and Transfer of securities are time consuming in electronic mode.


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Depository System has a very important role to play in the successful functioning of the capital market.


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