DEMAT Account : Know How It Works (Part 2)

Hello Friends here we come up with an extension of our previous blog “DEMAT ACCOUNT – Know how it really works”

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DEMAT Account : Know How It Works 🙂

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In first Blog, we tried to discuss about the importance of Demat account.

In this Blog we would throw some light on aspects like what are the features and benefits of a Demat account!

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Why Demat?

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The demat account in short helps in certain factors as given below:

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– reduces brokerage charges,

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– makes pledging/hypothecation of shares easier,

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– avoids confusion in the ownership title of securities, and

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– provides easy receipt of public issue allotments.

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🙂

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What are the features and benefits of Demat account ?

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As opposed to the earlier form of dealing in physical certificates with delays in transaction, holding and trading in Demat form has the following benefits:

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1.  It eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation and reduces brokerage charges,

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2.  Settlement of Securities traded on the exchanges as well as off market transactions,

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3.  Reduces time taken to stock trading drastically avoiding problems encountered in case of physical shares like signature mismatch, postal delays and loss of certificates in transit,

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4.  Enables quick ownership of securities resulting in increased liquidity,

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5.  Easy settlement of the ownership title of securities, and provides easy receipt of public issue allotments,

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6.  Pledging of Securities,

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7.  Auto Credit of Rights / Bonus / Public Issues / Dividend credit through ECS,

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8.  Auto Credit of Public Issue refunds to the bank account,

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9.  No stamp duty on transfer of securities held in Demat form (as against 0.5 per cent payable on physical shares),

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10.  Increased liquidity, as securities can be sold at any time during the trading hours (between 9:55 AM to 3:30 PM on all working days), and payment can be received in a very short period of time,

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11.  It do away the requirements of filling up of transfer deeds,

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12. Change of address, Signature, Dividend Mandate, registration of power of attorney, transmission etc. can be effected across companies held in Demat form by a single instruction to the Depository Participant (DP),

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13.  Holding / Transaction details through Internet/email.

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🙂

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Next Blog (final part), we would try to know about the Steps for opening a Demat account and Documents Requirement for opening a Demat account.

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Stay Tuned for more on this.

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However For More latest Industry, Stock Market and Economy News Updates, Click Here

Global Slowdown Caused Slump in Growth Rate of the Demat Accounts

Global Slowdown Caused Slump in Growth Rate of the Demat Accounts

 

Despite the blistering pace kept by the equities market in the past 10 months, the rise in the number of new retail investors has slowed down.

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According to the data from National Securities and Depositories Limited, the growth rate of demat accounts has declined to 6 per cent, compared with 13 per cent last year.

Experts attribute this to the overall slowdown in the economy.

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As per experts a prolonged, dull phase in 2008 made investors jittery about investing in the equities market.

Also, as many individuals were scared of losing their jobs, so they did not intend to invest more.

There has been an average growth of 14.75 per cent in investors opening demat accounts till 2008.

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Financial intermediaries such as broking companies, whose fortunes are directly linked to the markets, have witnessed subdued sentiments in the equity space from retail investors.

Experts cited 2008 market crash and the global financial meltdown as the reason for this negative development.

Moreover recession of last year had demotivated and scared the retail investors good enough to drive them away from the further investing.

This caused enormous loss for Financial intermediaries and most of the brokerage houses had to shut shop and retrench many staff too.

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“The confidence of the retail investors is yet to be restored. Even in the case of new initial public offerings, only the institutional part is getting oversubscribed,” said Jagannadham Thunuguntla, head of research at SMC Capitals.

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Bear and Bull – Part 1

Hello Friends here we come up with our another write up on “SMC Gyan Series” 🙂

Have you all ever wondered that what exactly this Bull and Bear Market is ?

 

Bull markets and bear markets...what are they?

What are they? What do they look like? What’s the origin of this terminologies?

Lets Talk about it

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When we talk about bull and bear stock markets it reminds us that it’s a zoo out there. And, like any zoo, there are quite a few wild species to be found 😉

The first two are the bulls and the bears.

Bull market is when stock prices are climbing strongly and a Bear market is when they’re languishing.

Bear Market

To be more precisely, in finance, a bear market is a market condition that occurs when the prices of shares decline or are about to decline.

Figures may vary, but if prices decrease by 15 to 20% then the market is assumed as a bear market.

In general, a bear market resumes if the government goes into recession and if the inflation rate is high.

Bull Market

A bull market is a condition of a financial market of a group of securities in which prices are rising or are expected to rise.

The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue.

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Myth About Bull and Bear Markets

One common myth is that the terms “bull market” and “bear market” are derived from the way those animals attack a foe, because bears attack by swiping their paws downward and bulls toss their horns upward.

This is a useful mnemonic, but is not the true origin of the terms.

Long ago, “bear skin jobbers” were known for selling bear skins that they did not own; i.e., the bears had not yet been caught.

This was the original source of the term “bear”.

This term eventually was used to describe short sellers, speculators who sold shares that they did not own, bought after a price drop, and then delivered the shares.

Because bull and bear baiting were once popular sports, “bulls” was understood as the opposite of “bears.” I.e., the bulls were those people who bought in the expectation that a stock price would rise, not fall.

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Stay Tuned for more on this where we would touch upon if bull and bear markets are inevitable and what are the basics investors should keep in mind while trading in bear and bull market.

QIPs Outstripped PE Funding & IPOs in Fund Raising Process ;)

Qualified institutional placements (QIPs) have outstripped private equity (PE) funding since January by at least eight times, making it by far the most popular fund-raising route for firms this year.

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QIPs raised at least Rs. 21,209 crore since January this year, while PE funds invested only Rs. 2,574 crore in listed firms.

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QIPs have almost raised more than twice of initial public offerings.

A QIP is a private placement by a listed company of shares or securities convertible to equity with qualified institutional buyers approved by market regulator Securities and Exchange Board of India(SEBI).

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Data from Delhi-based investment bank SMC Capitals Ltd shows another 48 QIPs worth Rs.43,891 crore are in the pipeline.

But analysts do not expect a significant rise in the number of, or funds through, PE deals this year.

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Typically, PE investments take up to six months to complete, whereas a QIP can be done in up to four weeks, making the fund-raising process faster and more reliable since the institutional buyers are selected carefully.

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Also, in a QIP, the institutional buyers rarely seek a seat on the company board, or management control, a common practice in large PE deals.

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Since PE is perceptionally intrusive for promoters, QIP serves as a good alternative.

However this QIP structure is liked by investors and firms as in a QIP the window is shorter and money can be raised quickly.

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While real estate firms typically prefer QIPs for their need of capital at short notice, the companies currently waiting to do QIPs are across sectors, including telecom, entertainment, retail and information technology.

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In line for QIPs are Reliance Communications Ltd, Pyramid Saimira Theatre Ltd, Pantaloon Retail (India) Ltd  and few more.

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Some firms, though, have taken both routes for their funding needs.

Historically, PE investments in India have been in the form of private investments in public enterprises, or PIPEs, which also happen to the only firms eligible for QIPs.

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“Private equity investors have missed the boat,” Jagannadham Thunuguntla, head of SMC Capitals, said in a statement.

Companies that are in the pipeline for QIPs may also look for American depository receipts or global depository receipts for funds, he  added.

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India Inc Raises Rs.40K cr in Debt Market in Q1 :)

Improved investment sentiments have led corporate India‘s fund raising plans to sky high level.

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With more than half of the fund being mobilized by financial institutions, India Inc’s fund raising through private placement of debt has touched Rs 40,300 crore in the Q1 of the current fiscal.

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This is an increase of huge 42% from first quarter of last financial year.

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However, the April-June quarter of the present financial year saw a mobilization through debt (bonds) on private placement basis of Rs 40,300 crore, staggering 42% up from Rs 28,385 crores, raised in the first quarter of last financial year.

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Moreover, the largest mobilization through the route came in from financial institutions and banks with more than 67 institutions and corporate houses raising the full amount during the June quarter.

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Private placement of Debt is issue of securities, usually bonds that are sold without an initial public offering to a small number of private investors.

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Further, fund raising of financial institutions through debt private placement increased 35% to Rs 21,002 crore in the June quarter.

Additionally, private sector beat public sector in terms of fund raising where its mobilization increased by 50% from Rs 11,184 crore to Rs 16,753 crore.

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On the other hand, public sector financial institutions combined together, saw a decline in fund raising activity, whose mobilization stands 58% of the total amount, slipping 61% that mobilized in the previous year.

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Let’s Talk About Mutual Funds ;)

Friends we will discuss now as to what are mutual funds before going on to seeing why to invest in mutual funds instead of stock 🙂

What is a Mutual Fund?

A mutual fund is an investment that pools money from many investors, and that money is used to invest in stocks, bonds and other securities.

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One mutual fund share includes a portion of a share of each stock held in the fund’s portfolio.

The stocks these mutual funds have are very fluid and are used for buying or redeeming and/or selling shares at a net asset value.

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Mutual funds posses shares of several companies and receive dividends in lieu of them and the earnings are distributed among the share holders.

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Who Decides What a Mutual Fund Invests In?

Mutual fund managers decide what securities to buy or sell guided by the mutual fund’s objectives.

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If a mutual fund’s objective is to invest in the energy sector, the manager cannot buy shares in technology stocks.

Fund objectives let you know what to expect now and in the future.

Mutual funds can be either or both of open ended and closed ended investment companies depending on their fund management pattern.

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An open-end fund offers to sell its shares (units) continuously to investors either in retail or in bulk without a limit on the number as opposed to a closed-end fund.

Closed end funds have limited number of shares.

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Why Invest in Mutual Funds Instead of Stock?

You can invest in both mutual funds and individual stocks, but mutual funds are particularly useful in some cases.

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*Diversification: If you do not have a lot of money to invest, creating your own diversified portfolio to spread risk will be difficult.

Diversification is automatic in mutual funds.

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*Time : Successful investors take hours every week to analyze their holdings, stock market conditions and to educate themselves further on investing.

Mutual funds are a wise choice for those who lack the time to follow stocks so closely.

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* Experience: Consistently investing well takes a few years of experience and learning from mistakes and successes.
If you are not experienced with trading stocks but want returns over and above what a savings account offers, investing in mutual funds is a good way to grow your personal assets.

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Stay Tuned for for more Finance Gyan and to have more updates on Industry,Stock Market and Economy, Click Here

DEMAT Account : Know How It Works :)

With growing financial awareness, more and more people now want to dabble in the share market.

To do this, one should understand the basic requirements to trade in shares.

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A company enlisted in a stock exchange, is under obligation to offer the securities in both physical and dematerialized mode.

Physical securities mean actual certificates giving information about the shares of a company owned by a person.

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In the same manner, Dematerialization is the process of converting physical shares (share certificates) into an electronic form.

Shares once converted into dematerialized form are held in a Demat account.

Today, almost all of the shares trading happens using the Demat mode of shares.

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What is a Demat account?

Demat account allows you to buy, sell and transact shares without the endless paperwork and delays. It is also safe, secure and convenient.

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Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, you need to open a demat account if you want to buy or sell stocks.

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So it is just like a bank account where actual money is replaced by shares.

You have to approach the DPs (remember, they are like bank branches), to open your demat account.

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Let’s say your portfolio has 100 of Satyam, 200 of IBM and 120 of TCS shares.

All these will show in your demat account. So you don’t have to possess any physical certificates showing that you own these shares.

They are all held electronically in your account.

As you buy and sell the shares, they are adjusted in your account.

Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.

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Is a Demat account must?

Nowadays, practically all trades have to be settled in dematerialized form.

Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more.

So a demat account is a must for trading and investing.

It is a safe and convenient means of holding securities just like a bank account is for funds.

🙂

Why Demat?

The demat account

– reduces brokerage charges,
– makes pledging/hypothecation of shares easier,
– enables quick ownership of securities on settlement resulting in increased liquidity,
– avoids confusion in the ownership title of securities, and
– provides easy receipt of public issue allotments.

🙂

What are the features and benefits of Demat account ?

As opposed to the earlier form of dealing in physical certificates with delays in transaction, holding and trading in Demat form has the following benefits:

– It eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation and reduces brokerage charges,

– Settlement of Securities traded on the exchanges as well as off market transactions,

– Reduces time taken to stock trading drastically avoiding problems encountered in case of physical shares like signature mismatch, postal delays and loss of certificates in transit,

– Enables quick ownership of securities resulting in increased liquidity,

– Easy settlement of the ownership title of securities, and provides easy receipt of public issue allotments,

– Pledging of Securities,

– Auto Credit of Rights / Bonus / Public Issues / Dividend credit through ECS,

– Auto Credit of Public Issue refunds to the bank account,

– No stamp duty on transfer of securities held in Demat form (as against 0.5 per cent payable on physical shares),

– Increased liquidity, as securities can be sold at any time during the trading hours (between 9:55 AM to 3:30 PM on all working days), and payment can be received in a very short period of time,

– It do away the requirements of filling up of transfer deeds,

– Change of address, Signature, Dividend Mandate, registration of power of attorney, transmission etc. can be effected across companies held in Demat form by a single instruction to the Depository Participant (DP),

– Holding / Transaction details through Internet / email.

🙂

Steps for opening a Demat account ?

As majority of shares trading happens through a Demat account, it is imperative that an individual dealing in shares has such an account.

The minimum age for opening a Demat account is 18 years. To open a Demat account, you must:

1) Choose a Depository Participant or DP (A Depository Participant can be a financial organization like banks, brokers, financial institutions, custodians, etc., acting as an agent of the Depository to make its services available to the investors)

2) Fill up an account opening form provided by DP, attach relevant documents, and sign an agreement with DP in a standard format prescribed by the depository

3) The DP provides the investor with a copy of the agreement and schedule of charges for his future reference

4) DP opens the account and provides the investor with a unique account number, also known as Beneficiary Owner Identification Number (BO ID)

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Documents Requirement for opening a Demat account ?

Pan card is mandatory for opening a Demat account (effective from April 01, 2006)

Charges applicable (vary from DP to DP):

Account Opening Fee

Annual Maintenance Fee

Custodian Fee

Transaction Fee

Similar to a bank account a Demat account may be closed after a period of inactivity.

Check with the DP about the period and the charges associated with reactivating it.

🙂