InvestorQ : What is meant by holding government securities in physical form and in demat form?
NISHA Nayak made post

What is meant by holding government securities in physical form and in demat form?

vidhya Laxmi answered.
3 years ago

Physical form

Government securities may be held in the form of stock certificates. A stock certificate is registered in the books of the PDO. The ownership of stock certificates cannot be transferred by way of endorsement and delivery. They are transferred by executing a transfer form as the ownership and transfer details are recorded in the books of the PDO. The transfer of a stock certificate is final and valid only when the same is registered in the books of the PDO.

Demat form

Holding government securities in the dematerialized or electronic form is the safest and the most convenient alternative, as it eliminates the problems relating to custody, such as the loss of securities. Besides, transfers and servicing are electronic and hassle free. The holders can maintain their securities in dematerialized form in one of two ways:

SGL Account: The RBI offers a Subsidiary General Ledger (SGL) account facility to select entities, who can maintain their securities in SGL accounts maintained with the PDO of the RBI.

Gilt Account: As the eligibility to open and maintain an SGL account with the RBI is restricted, an investor has the option of opening a Gilt Account with a bank or a primary dealer that is eligible to open a Constituents’ Subsidiary General Ledger Account (CSGL) with the RBI. Under this arrangement, the bank or the primary dealer, as a custodian of the Gilt Account holders, would maintain the holdings of its constituents in a CSGL account (which is also known as an SGL II account) with the RBI. The servicing of the securities held in the Gilt Accounts is done electronically, facilitating hassle free trading and maintenance of the securities. The receipt of maturity proceeds and periodic interest is also faster, as the proceeds are credited to the current account of the custodian bank/PD with the RBI, and the custodian (CSGL account holder) immediately passes on the credit to the Gilt Account Holders (GAH).

In addition to the above methods, investors also have the option of holding government securities in a dematerialized account with a depository (NSDL, CDSL, etc.). This facilitates the trading of government securities on the stock exchanges.