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| Depository Basics |
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What is a Depository?
A Depository facilitates holding of securities in the
electronic form and enables securities transactions to be processed by book
entry by a Depository Participant (DP), who as an agent of the depository,
offers depository services to investors. According to SEBI guidelines,
financial institutions, banks, custodians, stockbrokers, etc. are eligible to
act as DPs.
The investor who is known as beneficial owner (BO) has to
open a demat account through any DP for dematerialisation of his holdings and
transferring securities.The balances in the investors account recorded and
maintained with the depository can be obtained through the DP. The DP is
required to provide the investor, at regular intervals, a statement of account
which gives the details of the securities holdings and transactions.
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Number of Depositories in India
There are two Depositories currently operational in India
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National Securities Depository Limited (NSDL) - The enactment of Depositories
Act in August 1996 paved the way for establishment of NSDL, the first
depository in India.
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Central Depository Services Limited (CDSL) – This was the second depository in
the country.
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Benefits of Depository
The benefits of participation in a depository are:
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Immediate transfer of securities;
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No stamp duty on transfer of securities;
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Elimination of risks associated with physical certificates such as bad
delivery, fake securities, loss, theft, mutilation due to careless handling,
etc.;
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Reduction in paperwork involved in transfer of securities;
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Reduction in transaction cost;
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Nomination facility;
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Change in address recorded with DP gets registered electronically with all
companies in which investor holds securities eliminating the need to correspond
with each of them separately;
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Transmission of securities is done by DP eliminating correspondence with
companies;
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Convenient method of consolidation of folios/accounts;
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Holding investments in equity, debt instruments and Government securities in a
single account;
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Automatic credit into demat account, of shares, arising out of
split/consolidation/merger etc
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Role of a Depository Participant
A Depository Participant(DP) is an agent appointed by the
Depository and is authorized to offer depository services to all investors. An
investor cannot directly open a Demat account with the depository. An investor
has to open his / her account through a DP only. The DP in turn opens the
account with the Depository. The DP in turn takes up the responsibility of
maintaining the account and updating them as per the instructions given by the
investor from time to time. The DP generates and provides the holdings
statement from time to time as required by the investor. Thus, the DP is
basically the interface between the investor and the Depository.
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