A Demat experience
This would be a slightly longish rant about trying to open a demat account, more to do with stocks/shares rather than technology.
My grandfather had a fondness for shares/stocks/equity during his civil service and well after his retirement. One of my first rememberances of him was him hovering over the Radio listening to the day’s stock quotes and he trying to make sense of them. This is and was a patient man’s game. While my growing up and in my discussions with him he had shared that for a long time many people had no options to invest. After India’s independence for a long time people either used to speculate on things and banks were mostly co-operative in nature and used to fold up every now and then leaving the investors high and dry. So when the first stock markets came up, it did become a sort of investment option for better off people as well as the beginnings of the middle class. This can be seen in movies like Jeevan Mrityu which does use the stock markets as a means/device to move the plot forward.
Anyway, after his retirement from government service, my grandpa found it as it gave him some financial returns as well as was an excellent way to pass his time otherwise he would not have known what to do. All the children had grown up and they were doing their own thing. Subsequently, he also advised mother on some financial matters and did advise her to put some money in stocks and shares too. By this time the share market had also matured a bit, now you had something called a share certificate and people had something they could hold on to and people waited and could wait for time for returns to happen either in form of dividend, bonus shares or appreciation in the rate of shares being traded in the share/stock market. Of course, there were scammers even then as well as during these times and people do and did get cheated out of their own hard-earned money.
Now let’s cut to early and late 90’s the concept of Dematerialization of Shares/Stocks came as a concept in India.This is/was the time when Internet had just entered the indian lexicon. The Demat accounts was primarily targeted towards PIOs and NRI’s and for quite sometime it was exclusively for them and some high-end wealthy people.
Now around the year 2004 when Mr. P. Chidambaram (the then and now Finance Minister again) gave his blessing to the concept of Demat of shares both for broadening of the capital markets and letting people do their own investments. A lot of share brokers initially opposed and then went out of their business although at that time both the conversion fees from converting from physical shares to Demat were a bit prohibitive, still quite a number of people went along with it.
While lot of people could give a lot of reasons for opening a Demat account, for us the main is and was that it’s a Net based activity. While physical shares and information can be lost in fire or something and needs a middle-man to take any action, this information would not be not lost as it can be put into multiple servers and you can also take a backup. Also you are no longer on mercy of share-brokers and have to trust them at their word on what amount they sold the share at. But because of what we had heard from different people that the experience was harrowing we decided to wait a bit more.
Now, come to 2013. To tell the truth, I had been unsure of this whole demat thing but mother had been cajoling me for sometime. So after a bit of give and take we went to a bank to open a Demat account. This is and was a horrible experience to date.
While I cannot take the bank’s name as I have no proof. It is and was ‘hearsay’ so would have to leave the bank name unnamed.
1. Now the first lie they told us they have no conversion charges. The statement, a clever lie starts with ‘Usually’ we don’t charge for conversion of shares to a demat account. In their own opening account form they have mentioned they have some charges for conversion. So, we would have to assume ‘good faith’ rather than what is written on the paper where it said charges and it would be trusting the ‘bank’ for the fairness. This is and was not easy to trust.
2. The second thing is/was that they wanted to take at least 20 signatures of mum without taking time to read under various heads. This again is and was suspicious to me. A normal saving account has 2-3 signatures at the most. It is and was most likely that the bank was covering all their asses in any given situation and all charges or any issues risen, the customer (in this case mum would have to pay charges for). Both the hurry shown by the bank staff and their reluctance to wait so we could read the terms and conditions was suspicious to me.
3. The main motive my mother wanted to open the account was so once the shares were dematerialized they could easily be transferred in her name. Theoretically it should be easy, in actuality or at least from what the bank people told me it’s not. I would have to send the shares in physical form and incult whatever charges to get the shares/stocks under joint names. This one defeats the purpose of opening the demat account there and then.
4. The other part was if we opened a demat account then if we wanted to send shares for transferring under the joint account, they would obviously be some charges which they were not upfront or clear about.
5. Lastly, they wanted mother to go for a 10 year plan so she will be stuck with them for the next 10 years for some discount in brokerage fees in case she sells shares.
6. They have a booklet called 3 in 1 account opening form which spans around 70-80 pages with more than half of it with terms and conditions but some other forms which they wanted us to sign were in very small point.
7. One other point which came when they were trying to get her to the 10-year old plan that in the event of moving to a different demat account with some different service provider I would again have to remat the shares.
8. All of the forms and all the instructions were in English. While we are comfortable and can understand the language, on asking if the same is available in Hindi they were giving blank stares to one another.
All of the above were sending me and mum a bit of warning bells. At the end of it, we didn’t sign up for the demat account at least with this institution. I do have the account-opening booklet with me and over the course of week-end or two I hope to go through the Terms and Conditions so at least I’m aware of the pitfalls and hopefully be a bit better prepared if we try to open a demat account at some other institution.
It also left a pretty bad taste in the mouth and I realized why the stock market still doesn’t have lot of depth in the middle and lower middle classes.They certainly need to make it accessible and easier for people to open demat accounts as well as making demat accounts portable. If the capital markets are to have any depth, they cannot do so by lying to the people. I do not want to paint a bleak picture as this was my first experience but it would definitely make me a bit more cautious in dealing with banks than before.