Answer in brief.

1. Explain disadvantages of physical mode of holding securities.
Ans: Disadvantages of physical mode of holding securities are as follows:
Physical mode of holding securities : It means securities are held in the form of paper certificates.
It has following disadvantages :
1) Risk : Certificates of papers can be lost, damaged, torn, stolen, misplaced during transit, etc.
2) Efforts in Duplicating : Obtaining duplicate certificates (if original certificate is lost) involves time, efforts and money.
3) Delay in allotment of securities : Allotment of new securities takes longer time.
4) Delay in Transfer and Transmission of securities : More time is involved in transfer and transmission of securities as it involves actual handling of physical certificates.
5) Risk of Bad Delivery : Delivering certificates which are torn, forged, etc. creates problems in buying and selling of securities.

2. Explain any four advantages of Depository system to Investor.
Ans: Four advantages of Depository system to Investor are as follows :
1) Elimination of Risk : All risks associated with physical certificates like delays, lost, theft, mutilation, bad deliveries, etc. are totally eliminated.
2) Security against Loan: Dematerialised securities are preferred by banks and financial institutions as security against loan.
3) No concept of Lots’ : The system of odd and even lot stands abolished. The market lot is one share for dematerialised securities. 
4) Nomination Facility : Individual Investors avail of nomination facility. This simplifies the process in the event of the death of the investor.

3. Explain four advantages of Depository system to the Company.
Ans: Advantages of Depository system to the Company are as follows:
1) Up-to-date Information: The up-to-date information about investors is provided by the depository
2) Reduction in costs and efforts : Costs, efforts and time involved in printing and distribution of certificates in cases of new issues, bonus, transfers, etc. is saved.
3) Better Investor – Company Relationships : The complaints arising out of loss of certificates, signature differences, long lapses of time in executing requests, etc. is substantially reduced. It leads to better communication with investors and increased goodwill for the company.
4) International Investment : Under Depository System, better and quicker services can be provided and this attracts investments from abroad.
 
4. Explain Depository as constituent of Depository System.
Ans. (a) A depository is a firm wherein the securities of an investor are held in electronic form and which carries out the transactions of securities by means of book entry.
(b) It functions as a custodian of securities of its clients. It also provides different services related to different transactions in such securities. 
(c) It is responsible for safe-keeping of the investor’s securities and there is no direct access of investor with the Depository.
(d) It works as a link between the company and investors. The depository eliminates the risk of bad deliveries such as loss, theft, fraudulent, mutilation of certificates, etc.
(e) At present in India, there are two depositories. They are: – National Security Depository Limited (NSDL) – Central Depository Services Limited (CDSL) 

5. Explain DP as the constituent of Depository system.

Ans: (a) A Depository Participant is an agent of the depository. It functions as a bridge between the depository and the beneficial owners.
(b) It maintains the ownership records of every beneficial owner in book entry form.
(c) It enjoys rights and obligations as specified under SEBI (Depository and Participants) Regulations of 1996. The DP maintains account of securities of each investor and has a unique number for identification.
(d) Following can work as DP’s:
– Financial Institutions
– Banks
– Approved Foreign Banks
– Custodians responsible for overseeing operations of assets/fund.
– Stock Brokers
– Clearing Corporation
– NBFC (Non-Banking Financial Company)
– Registrar to an Issue or Share Transfer Agents.