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What are the Benefits of Depository System?
The benefits of depository system may be studied under four heads namely,
1. Benefits to investors,
2. Benefits to companies,
3. Benefits to intermediaries; and
4. Benefits to the capital market.
2. Electronic transaction of securities saves time. Time spent on preparation of share certificates
and transfer deed are avoided.
4. Instant transfer of securities enables the investor to get dividend, right and bonus without
delay.
5. Transaction costs are reduced as transfers in electronic form are exempt from stamp duty.
6. There is no problem of odd lots as the marketable lot in depository is fixed as one share.
7. The interest rate on loan against pledge of dematerialised shares is comparatively lower.
8. As a security measure, the account holder can totally freeze his account for any desired period.
9. Depositories enable the investors to deliver shares in any part of the country without exposing
themselves to the risk and cost of transportation.
10. The investor is able to revise his portfolio more frequently due to low transaction costs and
quick transfer of securities.
4. Distribution of cash corporate benefits (dividends) and non-cash corporate benefits (rights and
bonus) will be quicker as the ownership can be easily identified.
5. The transfer process under depository system is prompt and free from defects. So, complaints
against the company by an investor is avoided in this regard. This helps the company build a
good corporate image.
2. Use of computers and improved communication technology in the depository system has made
capital market activities efficient.