A depository is an organization where the securities of an investor are held in electronic form. A depository can be compared to a bank. To avail of the services of a depository, an investor has to open an account with the Depository through a depository participant, just as he opens an account with the bank. Holding shares in the account is akin to holding money in the bank.
At present, India has only two depositories—National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). NSDL is the first depository to have started in India, whereas CDSL followed them. However, most of the services offered by both these depositories are similar. Today almost all the companies listed in dematerialized form with NSDL are available with CDSL.
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 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.
Example- Motilal Oswal’s Modes is a DP of both Depositories (NSDL as well as CDSL.). For the purpose of Internet Trading, you will have to open a demat account with Motilal Oswal, who is authorized to offer you this service. We will be opening your demat account with CDSL. The balances in your account are maintained with the depository and are available to you through us. You can find the status of your holdings or transactions from time to time.
As an investor you will enjoy many benefits if you buy and sell shares in the depository mode. The following are some of the benefits you will enjoy : –
- No bad deliveries
- No risk of loss, mutilation or theft of share certificates
- No stamp duty for transfer of shares
- Reduced paper work
- Fast settlement cycles
- Low interest rates on loans granted against pledge of dematerialized securities by banks
- Low margin on securities pledged with banks
- Increase in liquidity of your securities because of faster transfer and registration of securities in your account
- Instant disbursement of non-cash benefits like bonus and rights into your account
- Regular account status updates available from MODES at any point of time