MUMBAI: The mood on Dalal Street seems cautious at the start of the New Year after a sizzling run in the stock market in 2014. With the pace of implementing pro-market measures by the government turning out to be far slower than what investors expected and concern over a likely slowdown in foreign portfolio inflows heightening, investors are bracing for moderate returns from the stock market in 2015. 

Cash reserves are money kept aside as an emergency fund. We are discussing the need to keep cash reserves as our fifth principle because, this is one important idea which most of us neglect. When you set aside some money from your earnings to meet unexpected expenses, there are four advantages that automatically comes with it:
1. Financial safety.
2. It allows you to take advantage of a surprise financial opportunity
3. It creates a compulsory saving habit.
4. Since funds are kept in liquid cash or gold, it earns interest or appreciates in value.
We recommend to create an emergency fund that equals to 4 or 5 months of living expenses; however, you do not need to set aside this total amount in cash alone. It can be in short term fixed deposit or Gold etc..
HOW MUCH RESERVE?
That depends from person to person.
There are a number of factors that influences your decision on the quantum of emergency fund that needs to be created. Factors such as age, occupation, health condition, monthly EMIs, number of members in the family, other sources of income needs to be considered on a one to one basis.
1. AGE:
Depending upon how old you are, the emergency fund required keeps changing. As you grow older, the possibility of medical emergencies is also high. Hence, if your age is on the higher side (let’s say you’re 45 years old) you also need an emergency fund that’s higher than some one who is just turning 30.
2. OCCUPATION:
The style of occupation/business you do is another factor that influences emergency fund decisions. If you are doing a seasonal business or if your job has an uncertain future, you need a higher emergency fund. People living on commission based income would also require a high emergency fund.
3. HEALTH CONDITION:
More reserve funds may be required for a person whose health condition is questionable. The amount of insurance cover he has should also be considered while assessing his future requirement. Higher the insurance, lesser the need for reserve funds on these grounds. Again, if you have your parents or grand parents living with you, you might need to plan accordingly.
4. MONTHLY EMIs.
The volume of debt you have needs to be analysed to get an idea about how much EMIs you’ll have to pay a month. Typically, while creating reserve funds, an amount equal to 6 months EMIs should be kept aside so that in case of emergency, you don’t default in your loan payments. A clear track record of loan re-payments is absolutely necessary for your future financial needs.
5. NUMBER OF MEMBERS IN FAMILY.
If the numbers of members you need to support are more (say 7 members) naturally you need a higher reserve than what would be required if you have only say, 3 members in your family.
6. OTHER SOURCES OF INCOME
You can count on your other sources of income, if any, while creating a reserve fund. One time or casual income or credit card limits should not be considered in this group. However, you can count on the income of your spouse or other family members staying with you in case of emergency.
7. OTHER POSSIBLE EXPENSES.
You may also want to consider other expenses like possible higher education fees for your child who is about to enter college or a possible repair for your house. It all depends from person to person.
HOW TO KEEP RESERVE FUNDS?
Hundred percent of your reserve funds need not be kept in liquid cash. A portion of it can be kept in short term fixed deposits or debt funds and a certain portion in gold or easily marketable securities.
Any cash lying idle over and above your emergency fund results in a lost investment opportunity. You are not making your money work efficiently for you.
THUMB RULE
The thumb rule is – You should have enough reserves to meet all the expenses for 4 or 5 months plus some extra to meet unforeseen expenditure like medical expenses.

HOW TO SPOT IDLE FUNDS?

• First estimate how much emergency fund you’ll require. (typically 3-6 months expenses)
• Now see how much you have in your bank account plus cash in hand.
• Deduct 3 or 6 months emergency fund. The balance is your idle fund.
• This fund should be invested immediately. You can take up a systematic investment plan so that an amount gets invested automatically every month; or you can open an online trading account and invest in stocks or mutual funds at your convenience ; you can opt to open FD linked savings account so that any balance above a certain limit automatically earns interest at a higher rate and so on..

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That’s interesting! This is one topic everyone will read very carefully because it all about finding money! Imagine that you found Rs 1000 between the pages of an old book on the shelf. You kept it some months back and forgot about it. How does it feel? Even if that money was never found, you would have still lived with what’s left in your wallet without even bothering where it disappeared. isn’t it?
This is the principle behind accumulating savings from your income. Set aside your target savings and forget about it as if it were not there and live with the rest. It’s not easy as you think,but definitely not impossible. And , it’s never too late to apply this principle !

To most of us Savings = Income (or salary)- Expenses . However, this formula doesn’t work ( as you would have already experienced ) since when money is in your pocket, you get trapped by advertising tricks like discount offers on Clothes or new gadgets which tempts you to spend more. It’s difficult to control expenses. As a result, your savings never hits the target. If what we said holds true for you and you seriously want to save a fixed 10% or 20% of your take home salary each month, you need a different approach to savings. We suggest Robert Kiyosaki’s method from his famous book ‘Rich Dad Poor Dad’.
What kiyosaki said is very simple. Instead of trying to limit your expenses every month, first deduct an amount which you intend to save and keep it in a separate account so that you live with only what’s left. So our formula has to be modified like this :

INCOME – SAVINGS(INVESTING FUND) = EXPENSES

Smart ! isnt’ it ? This formula forces you to “pay yourself first,” before the other expenses. That way you know your savings will not get lost in the daily grind of living expenses.
The other side of this formula is a forced discipline. You hold your expenses to no more than 90% of your take home pay.
You can even automate the process by having 10% (or any amount you want) deducted from your Salary account and transfer it into a separate account or fixed deposit, recurring deposit or other savings instrument .
So that’s the basic trick to find money!
But, that’s not all. You can also find money from many other sources. For example, Instead of going for parties and shopping, you can set aside extra payments like bonuses, commissions and so forth into your savings Fund.
So try to make it a habit to set aside 10% ( or what ever percentage you would like to set aside) and live with rest. If you do that, you have a great chance to succeed.

MORE TIPS TO CONTROL YOUR EXPENSES:

SPEND LESS

This is one simple method to save more. Sit back and analyse your spending habits and look where you spend more unnecessarily. Once you have identified certain areas of high spending, try to find ways to cut back. Take a decision that you’ll not spend more than a fixed budget.

MAKE A BUDGET

A budget is a very important tool to control expenses. Be it individuals or corporates. A budget is nothing but a chart or a statement that shows how much you earn and hence, how much you can spend.

PAY OFF YOUR LOANS

Loans carry high rates of interest. If you have a lot of EMI’s to pay, it naturally reduces your capacity to save more. It also shows that you’re living on high levels of debt which is not a right thing to do. If you have loans, first look for ways to pre-pay it as soon as possible. Another common area where you could lose a lot of money is credit cards. Credit cards companies slap huge interest for delayed payments.

TRY TO AVOID LATE PAYMENTS

Any bills – like electricity or telephone or internet or credit card has a deadline within which you are supposed to pay the dues. Unnecessarily delaying such payments results in payment of fines. Such expenditures can be avoided if you can get organized on your bill payments. Make a list of monthly payments and the deadline within which you are supposed to pay. These days banks also allow their customers to automate or link their periodic bills to their savings account or credit card.
Credit cards over dues need particular mention here. Credit card companies slap huge interest and fines for delayed payments.

THINK BEFORE YOU BUY

Do not buy anything on impulse. Before laying your hands on any fancy thing which is up for sale, think if it’s really needed.

SHOP SMART

Most of the big brands will be available at throw away prices once there’s an off season sale or sales promotion drive. For example if you want to buy an expensive watch, wait for the company to announce some discount offers. All the big brands announce discount offers at least twice a year.

KEEP DISTANCE FROM LAVISH FRIENDS

High spending lavish friends are may hinder your route to save money. It’s natural for you to get tempted by such friends to buy new gadgets every year. They may be nice guys and may not harm you in anyway, but to keep up with them , it may become necessary for you to spend high ( for example latest electronic items or cars , parties, expensive dresss etc ) which other wise ay not be required !

SAVING ENOUGH IS HALF THE JOB DONE

If you have saved enough,good. but saving is only half the job done.You have to give your savings the right opportunity to grow. Putting all your funds in fixed deposits or fixed income bonds is not a good idea. Your investments should have the right mix of equities, bonds, gold and fixed deposits.Deciding the ‘right mix’ of investments is something an investment expert can do. It depends on an individual’s age and risk profile.

KNOW IT

• Finding money is a matter of making it a priority.
• Pay yourself first and learn to live off with what is left. You will always have money with you. It may be difficult at first. But gradually, you will see your fund growing and that would encourage you to stick to it until you reach your goal of finding enough money.
• Bonuses and extra pays you get are opportunities to buy the latest iphone or Blackberry but a prudent option would be to create a savings out of it
• You can save a lot of money if you control your expenses.
• As time goes by, your small saving will also give you additional money in the form of interest. Finally, you’ll find that you’ve done a great job,creating more money than expected.

Take our word. It’s fool proof !!

Adolf Merckle was one of Germany’s richest business man. He developed his grandfather’s chemical wholesale company into Germany’s largest pharmaceutical wholesaler, Phoenix Pharmahandel . He was educated as a lawyer,  but spent most of his time investing. He lived in Germany with his wife and four children.
In 2006, he was the world’s 44th richest man. Merckle’s group of companies employed 100,000 workers and had an annual turnover of 30 billion euros (around 39.9 billion U.S. dollars).

All this turned upside down after his business empire was plunged into difficulties due to the financial crisis. Merckle hit the headlines in 2008 when he suffered massive losses on investments he had made on movements of the share price in Volkswagen, Europe’s largest car company.
On Jan 06,2009 German news agency DPA reported that –  Merckle, 74, threw himself under a train at his hometown of Blaubeuren, a small town near southern Germany city of Ulm, and a railway worker found his body by the side of the track.
Before his death, he had been negotiating with banks for a bridging loan of 400 million euros (around 547 million U.S. dollars) to save his empire, which includes the pharmaceutical company ratiopharm and drugs maker Phoenix. That figure shows the depth of financial crisis he had.
The picture above shows the place where his body was found. What a tragic end to the life of one of the world’s richest man.


…MERCKLE ISN’T ALONE

Here’s more -
In Jan 2009 , The national suicide preventing hotline in US reports that, calls have soared by as much as 60 per cent over the past year – many of the  calls were from people who have lost their home, or their job, or who still have a job but can’t meet the cost of living.
A 45-year-old businessman in Los Angeles murdered five members of his family before turning the gun on himself, saying in a suicide note that he had done so because of his troubling financial situation.
Karthik Rajaram, 45, who had made almost £900,000 on the London stock market, shot his wife, three children and mother-in-law in the head before shooting himself at the family home near Los Angeles.He did this after seeing his family’s fortune wiped out by the stock market collapse.
A 90-year-old Ohio widow shoots herself in the chest as authorities arrive to evict her from the modest house she called home for 38 years.
In Massachusetts, a housewife who had hidden her family’s mounting financial crisis from her husband sends a note to the mortgage company warning: “By the time you foreclose on my house, I’ll be dead. Then, Carlene Balderrama,  shot herself to death, leaving an insurance policy and the suicide note on a table.


WE INDIANS AREN’T BEHIND..


Thousands commit suicide unable to bear the pressure and crisis, that mismanaged investments create.
Internet and newspapers report about people falling prey to financial frauds like ‘get-rich-quick’ schemes and money chains, eventually losing every penny they had earned.
Did you know that a small state like Kerala spends more than Rs 40 crores a day on lottery tickets alone?According to Tehelka.com’s reporter Shantanu Guha Ray , Illegal lottery tickets account for atleast 60 per cent —Roughly Rs 7,200 crore — of the Rs 13,000 crore gambled every year on lottery tickets in India. All sections of the society are involved in this. I know doctors, HR consultants, engineers, stock market investors, Government officials,housewives and students who regularly put money in lottery tickets. Anyway, lottery tickets ( if you’re lucky to get an original one ) at-least gives you a chance to win.
There is another section of people who gets involved in money chains – where wealth gained by participants entering the scheme earlier, is the wealth actually lost by those coming later. In-spite of hearing about many schemes in which people have lost their wealth, India continues to be a happy hunting ground for such fraudulent operators. The root cause of all this can be brought under one head-Greed for money and  financial illiteracy.
This is exactly the reason why we will first discuss about the basic principles of money management . People spend lakhs to get a  doctor’s degree or a MBA from the most prestigious of  institutes. They spend a lot to pursue their hobbies such as music and salsa.  But when it comes to managing their money , they hardly make any effort to learn  at-least the basics , forget about gaining specialized knowledge !
The next chapter will take you through the basic principles of money management. These principles are important to everyone out there– housewives, businessmen,musicians, students, professionals , priests , social workers.. anyone who deals with money directly or indirectly.

Trying to win in the stock market without a trading plan is like trying to build a house without blueprints – costly mistakes are inevitable.


1 – Your strategy to enter and exit trades

There is no denying the fact that earning from stock market is an art, not just speculation, forecasting and analysis. Whether you are a retail investor or a big fund, one question you should ask yourself is “what is your trading cost”?. How much part of your earning are you passing on to your broker in the form of commissions because it really affects your “profit margin”.

If you are already familiar with stock market, there is a small homework for you. Check out the contract note you have received from your stock broker. Or else, if you plan to enter into stock markets and seeking for a broker, exercise your mind a little to know the net brokerage being charged by your broker and study the various commission components. The reason is simple; the amount you pay to your broker may make difference your winning or loosing in the trade. Confused??…It is a common mistake that novice traders execute trade assuming they are earning atleast meagre profit margin, but if all the components including brokerage, taxes, and stamp duty are accounted for, the profit margin comes out to be negative. Isn’t it strange? Yes, so we are here to understand the computation of the net trading amount you pay to your broker.

RATES OF BROKERAGE

There are many brokers charging different rates of brokerage. For example, ICICI Direct charging @.75% and HDFC charging @ .5% of trading amount. However the net trading cost is computed as below:
Trading cost = Brokerage + STT + Stamp duty + other charges
So in addition to brokerage, there are below costs accounted in net amount:

1. STT – Sale transaction tax is imposed on the sale/purchase of securities by retail/institutional investors and is charged on total turnover (cost of each share * no. of shares). For delivery of shares it is charged at .125%. For intraday selling of shares, it is charged @.025%. For buying, there is no tax for intra day trades. Currently government is under consideration to remove/reduce STT because since it was introduced in 2004, the cost of transaction of trades has drastically increased. This leads to loss in business as Indian markets are becoming less competitive compared to other emerging markets.

2. Stamp duty: Stamp duty is also charged on total turnover. For delivery of shares it is charged at .01% and for intra day it is charged at .002%.

3. Other charges: it includes below component:

a. Transaction charges: For trading of shares at NSE, it is charged @ 0.0035% while for BSE, it is charged @ 0.0034%.
b. SEBI turnover charges: For equity transaction, this remains NIL but for derivative transactions, it is charged @ 0.0002% of total turnover.
c. Service Tax: Service tax is charged on all the components

So net brokerage will be calculated as below:
Net brokerage = Brokerage + STT + Stamp duty + Other charges
So next time you trade, try to find out how much earning have you shared with your broker. Happy trading!!

Fundamental analysis is one of the most useful tools that investors use when making decisions about which stocks they’re going to buy. It is a process of examining key ratios that show the current worth of a stock and the recent performance of a company.
Fundamental analysis is used to determine the amount of money a company can make and the kind of earnings an investor can expect. Future earnings may be subject to interpretation but good earning histories create confidence among investors. The stock prices may increase and the dividends may pay out.
Stock market analysts determine whether a company is meeting its expected growth by examining the earnings that are reported by the company on a regular basis. If the company doesn’t meet its expected growth, the prices of its stocks usually experience a downturn.
There are a lot of tools that are used to determine the earnings and the value of a company on the stock market. Most of these tools rely on the financial statements released by the company. Details about the value of a company which include competitive advantages and ownership ratios between the management and the outside investors can be revealed through further fundamental analyses.

Financial Statements

Public traded companies are required to publish regular financial statements. These statements are available either in printed forms or in online pages. These statements include an income investment, a balance sheet, an auditor’s report, and a cash flow statement. They also include a description of the planned activities and expected revenues for the coming year.

Auditor’s Report

One of the most important sections found in financial statements is the auditor’s report. The auditor, who is an independent Certified Public Accountant (CPA), is the one who examines the financial activities of the company in order to determine whether the financial statement is an accurate description of the earnings or not. A financial report is considered worthless without an independent auditor’s report because it might contain some misleading or inaccurate information. Although it is not a guarantee of accuracy, an auditor’s report provides credibility to the financial statement.

Balance Sheet

The balance sheet, which is another important section in financial statements, serves a “snapshot” of the company’s financial condition at a single point in time. It shows the relationship between the assets such as cash, property, and equipment; the liabilities such as debt; and the equities such as retained earnings and stocks.

Income Statement

The section in financial statements that shows the information regarding the company’s net income, revenue, and earnings per share over a certain period of time is called the income statement. The top line of the income statement shows the amount of income that is generated by sales, underneath which the costs incurred in doing business are deducted. The bottom line shows the company’s net income or loss and the company’s income per share.

Cash Flow

The cash flow statement shares some similarities with the income statement because both sections provide a picture of a company’s performance over time. Unlike the income statement, the cash flow statement doesn’t use accounting procedures like depreciation. It simply indicates how a company handles its income and its expenses. The cash flow statement shows the incoming and outgoing cash from the sales, the investments, and the financing of a company. It is used as a good indicator of how the management runs the company and how the company handles the creditors. It also shows from where a company receives its growth capital.

These days, you can’t retire without using the returns from investments. You can’t count on your social security checks to cover your expenses when you retire. It’s barely enough for people who are receiving it now to have food, shelter and utilities. That doesn’t account for any care you may need or in the even that you need to take advantage of such funds much earlier in life. It is important to have your own financial plan. There are many kinds of investments you can make that will make your life much easier down the road.

The following are brief descriptions for beginning investors to familiarize themselves with different kinds of investment options:

Life Insurance

Stocks

Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your money.

Bonds

A bond is basically a promise note from the government or a private company. You agree to give them a set amount of money as a loan and they keep it for a set number of years with a predetermined amount of interest. This is typically a safe bet and one that is a good investment for a first time investor because there is little risk of losing your money.

Mutual Funds

Mutual funds are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several or many investors and invests in a list of various stocks to lessen the effect of any losses that may occur.

Money Market Funds

A good short-term investment is a Money Market Fund. With this kind of investment you can earn interest as an independent shareholder.

Annuities

If you are interested in tax-deferred income, then annuities may be the right kind of investment for you. This is an agreement between you and the insurer. It works to produce income for you and protect your earning potential.

Brokered Certificates of Deposit (CDs)

CDs are a kind of investment where you deposit money for a set amount of time. The good thing about CDs is that you can take the money out at any time without paying a penalty fee. We all know life isn’t predictable, so this is a nice feature to have in your option.

Real Estate

Real Estate is a tangible kind of investment. It includes your land and anything permanently attached to your piece of property. This may include your home, rental properties, your company or empty pieces of land. Real estate is typically a smart and can make you a lot of money over time

Indian indices:

Welcome to the ‘Weekly Market Wrap’ for July 11, 2014 where key benchmark indices slumped last week as investors booked profit after a strong rally in the past few months. An upward momentum in Indian shares kicked off after BJP led NDA government won a thumping victory in general election in May this year. Investors build up position in the equity market ahead of the Union Budget 2014-15 on expectations of far-reaching reforms.
Modi government's maiden Budget on Thursday, 10 July 2014, fell short of the hype. It lacked any major policy reforms and roadmap for reduction of subsidies. But Narendra Modi's administration earmarked substantial sums for new infrastructure, which should revitalise growth. Finance Minster Arun Jaitley made a number of announcements in Budget such as a proposal to increase in foreign direct investment in insurance and defence manufacturing, a sharp increase in plan expenditure, measures to boost long-term financing for infrastructure by banks and provided clarity on taxation with respect to foreign portfolio investors. But, market expectations that the Finance Minster would scrap the law on retrospective taxation were not met. Government spending on plan expenditure was substantially increased to support growth.
The S&P BSE Mid-Cap index fell 670.51 points or 7.02% to 8,875.24 and the S&P BSE Small-Cap index fell 819.92 points or 7.80% to 9,688.11. Both these indices underperformed the Sensex.
The S&P BSE Sensex fell 937.71 points or 3.61% to 25,024.35. The 50-unit CNX Nifty fell 292 points or 3.77% to 7,459.60.

Weekly market trend from July 07 – July 11:

July 07- India's NSE index rose on Monday to a third consecutive record high, while the benchmark BSE index surpassed 26,000 points, riding on gains in technology stocks ahead of Infosys Ltd's results and hopes of a fiscally prudent budget. The BSE Sensex rose 0.53% and NSE Nifty gained 0.46% for the day. The Sensex closed at 26100.08, up by 138.02 points, while the Nifty rose 35.55 points to close at 7787.15
July 08- Indian shares fell more than 2 percent on Tuesday, marking their biggest single-day fall in over 10 months as a lower-than-expected railway budget outlay sparked worries about subdued government expenditure in the federal budget due on Thursday. The BSE Sensex fell 1.98% and NSE Nifty slipped 2.11% for the day. The Sensex closed at 25582.11, down by 517.97 points, while the Nifty fell 163.95 points to close at 7623.20
July 09- India's NSE index marked a 1-1/2 week closing low on Wednesday, continuing to retreat from the record high hit in the previous session, as investors pared positions in blue-chips such as Tata Motors ahead of the federal budget. The BSE Sensex fell 0.54% and NSE Nifty slipped 0.50% for the day. The Sensex closed at 25444.81, down by 137.30 points, while the Nifty fell 38.20 points to close at 7585.00
July 10- Indian shares edged lower in a volatile session on Thursday as Finance Minister Arun Jaitley's pledge to narrow the fiscal deficit and open up sectors such as insurance and defence were offset by disappointment over the lack of major reforms. The BSE Sensex fell 0.28% and NSE Nifty slipped 0.23% for the day. The Sensex closed at 25372.75, down by 72.06 points, while the Nifty fell 17.25 points to close at 7567.75
July 11- India's NSE index fell 1.4% on Friday to post its biggest weekly loss since March 2013 as blue chips were hit by a range of factors including profit-taking and disappointment over the budget's lack of specifics. The Sensex closed at 25024.35, down by 348.40 points, while the Nifty fell 108.15 points to close at 7459.60

Global indices:

Top Losers: CAC40 down 3.75%, DAX100 fell 3.50% and FTSE100 slipped 2.82%.

Sectoral and stock screening:

Top Gainers: S&P BSE FMCG up 1.47% and S&P BSE IT up 0.73%
Top Losers: S&P BSE Power down 10.16%, S&P BSE CG slipped 9.98% and S&P BSE Realty fell 9.18%
Looking at the 'A' group stocks, the top three gainers of the week were – Crisil up 11.28%, IDFC up 9.52%, Sun Pharma up 6.84%
Top three losers of the week were - Unitech fell by 26.93%, GMR Infra fell by 22.75% and JP Power down 21.40%.

FII/MF activity

The foreign institutional investors (FIIs) have been the net buyers of the Indian stocks to the tune of Rs2091.93 crore and the domestic investors bought Indian shares worth a net of Rs131.60 crore as on July 09, 2014.

Market outlook for the coming week!

In the coming week, selling may continue amid lack of any major event. There could be some stock-specific action based on April-June 2014 corporate earnings announcements.
Macroeconomic data, trend in investment by foreign portfolio investors (FPIs), trend in global markets, trend in other global emerging markets, the movement of rupee against the dollar and crude oil price movement hold key.
On the macro front, the government is scheduled to announce the rate of inflation based on the wholesale price index (WPI) for the month of June 2014 on 14 July 2014.

If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application.
It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen.
Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks.

HOW TO OPEN A DEMAT ACCOUNT ?

Opening an individual Demat account is a two-step process: You approach a DP and fill up the Demat account-opening booklet. The Web sites of the NSDL and the CDSL list the approved DPs. You will then receive an account number and a DP ID number for the account. Quote both the numbers in all future correspondence with your DPs.
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. Let’s say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. 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.
Is a demat account a must? Nowadays, practically all trades have to be settled in dematerialised 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.
Most banks are also DP participants, as are many brokers.
You can choose your very own DP.
To get a list, visit the NSDL and CDSL websites and see who the registered DPs are.
A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients.
A DP will just give you an account to hold those shares.
You do not have to take the same DP that your broker takes. You can choose your own.
Banks are also advantageous because of the number of branches they have. Some banks give the option of opening a Demat account in any branch, while others restrict themselves to a selected set of branches.
Some private banks also provide online access to the Demat account. So, you can check on your holdings, transactions and status of requests through the net banking facility. A broker who acts as a DP may not be able to provide these services.

DEMAT ACCOUNT OPENING COST AND OTHER CHARGES

The cost of opening and holding a Demat account. There are four major charges usually levied on a Demat account: Account opening fee, annual maintenance fee, custodian fee and transaction fee. All the charges vary from DP to DP.
Depending on the DP, there may or may not be an opening account fee. Private banks, such as ICICI Bank, HDFC bank and UTI bank, do not have it. However, players such as Karvy Consultants and the State Bank of India charge it. But most players levy this when you re-open a Demat account, though the Stock Holding Corporation offers a lifetime account opening fee, which allows you to hold on to your Demat account over a long period. This fee is refundable.
Annual maintenance fee: This is also known as folio maintenance charges, and is generally levied in advance.
Custodian fee: This fee is charged monthly and depends on the number of securities (international securities identification numbers – ISIN) held in the account. It generally ranges between Rs. 0.5 to Rs. 1 per ISIN per month.
DPs will not charge custody fee for ISIN on which the companies have paid one-time custody charges to the depository.
Transaction fee: The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the fee to he transaction value, subject to a minimum amount.
The fee also differs based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities while others charge for both. The DPs also charge if your instruction to buy/sell fails or is rejected.
In addition, service tax is also charged by the DPs.