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Question
Write notes on Importance of Depository system.
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Solution
The importance of the depository system is explained as follows:
- Eliminates huge volume of paperwork: A significant amount of paperwork was required for the trading, transfer, and transmission of securities in systems that were paper- or scrip-based. Everything in the depository system is done electronically. As a result, the depository system reduces the huge amount of paperwork associated with systems that rely on paper (scrip).
- Use of state of the art technology: Modern technology is used in the depository system to enable quick transfers and transmissions of securities. The investors' demat accounts are automatically and instantly credited with dividends, interest, and other perks, as well as bonus shares and rights shares. Depository systems therefore provide opportunities for paperless trading.
- Eliminates storage and handling of certificates: Maintaining records of transfer documents or documentation pertaining to the sale and purchase of shares is not necessary in a depository system. The computer has all of the records of the transfers of securities as well as other relevant data saved and kept. As a result, handling and storing certificates is eliminated by the depository system.
- Reduces cost and efforts involved in the storage and handling of physical securities: The depository system reduces the expense and labor associated with handling and storing certificates. Additionally, stamp duty, postage, courier, registration, and other costs are saved by using this technique. Electronic records of all transactions pertaining to the purchase, sale, and transfer of securities are kept and preserved by the depository, an electronic system.
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