Depositories

A depository refers to a space where an asset is held for storage and safety. An example of a depository may be a bank, financial institution, or organization aiming to hold assets in dematerialized form. They interact with their clients through DPs (Depository Participants), also called stockbrokers. A depository provides security and liquidity to the held assets and ensures smooth transactions for the investors.

In financial terms, a depository means an entity that holds financial securities in a dematerialized form. Earlier, securities were issued and transacted in physical form. For transferring securities, depositories maintained manual records on a leaf of paper. With the advent of technology, securities are stored in an electronic format with a depository. The depository is also responsible for maintaining ownership records and facilitating the trading of such securities.

In India, the Depository Act of 1996 regulates the establishment and operation of a depository. SEBI is the governing body and regulates the functioning of any depository. NSDL and CDSL are the two major depositories in India.

National Securities Depository Limited (NSDL) is promoted by the National Stock Exchange, Industrial Development Bank of India, and Unit Trust of India. Furthermore, the Central Depository Services Limited (CDSL) is promoted by the Bombay Stock Exchange, State Bank of India, and the Bank of India.

The primary role of a depository is to facilitate the transfer of securities held by an owner. On the execution of a trade, the depository directly transfers the securities from the account of the seller to the buyer. Such electronic transmission improves the speed and efficiency of the transaction and reduces any margin for error.

To avail of depository services, an investor must open a Demat account.

Opening a Demat account with IIFL that offers highly competitive prices and unique features is simple:

Currently, it is almost impossible to transact in listed securities without a Demat account, even more so without a depository. The benefits of a depository cannot be overemphasized, and each investor must maintain a Demat account for investing.