What is a Depository?

A depository is a place where items are placed for safekeeping or storage. It can also refer to a business, such a bank or savings club, that takes deposits of cash from clients. A bank, company, or other establishment that holds securities and facilitates their trading can also be considered a depository. Upon request, deposits made at a depository must be returned in the same condition.

• National Securities Depository Limited (NSDL)
• Central Securities Depository Limited (CDSL)

What is a Depository Participant (DP)?

A Depository Participant (DP) acts as a mediator between investors and the depository. They are registered with the Securities and Exchange Board of India (SEBI) and play an important role in the investment ecosystem.

DP Charges

DP charges are fees taken by the depository and DP when you sell a stock. Here's how they work:

• When you sell shares, the DP asks the depository (CDSL or NSDL) to release the stock. Once released, a fixed charge is deducted from your account as DP charges. These charges are shared between the depository and the DP.
• Example: If you sell shares worth INR 50,000 or INR 5,000,000, the DP charges remain the same.

What services do DPs offer?

• Open a Demat Account: This is your electronic locker where your investments are held safely.
• Dematerialize your holdings: Convert your physical share certificates into electronic form for easier management. (Imagine converting bulky paper certificates into a neat and secure digital format!)
• Rematerialize your holdings (if needed): Get physical copies of your investments back if required.
• Help you trade your investments: Buy and sell shares, mutual funds, and other securities electronically.

Provide other services: Many DPs offer a range of services to enhance your investment experience:

• ‍Account Statements: Receive regular statements that contains details regarding your holdings, transactions, and current investment value.
• Nomination Facility: Nominate a beneficiary who will get your Demat account holdings in case of an unforeseen event.
• Consolidation of Accounts: Hold all your investments in one place by consolidating multiple Demat accounts from different DPs.
• Transmission of Securities: They help in transfer of securities from older generations to legal heirs.
• Corporate Action Processing: Receive dividends, bonuses, and other benefits associated with your holdings properly through your DP.

Why are DPs Important?

DPs play an important role in the smooth functioning of the investment ecosystem by offering several benefits:

1. Safety and Security: DPs act as custodians for your investments, holding them electronically in a secure depository. This reduces the risk of loss or damage related with physical certificates.
2. Convenience and Efficiency: They help in electronic trading and settlement of your investments, making the process faster and more convenient compared to the manual handling of physical certificates.
3. Transparency and Recordkeeping: DPs maintain detailed records of your holdings and transactions, providing you with clear ownership and transaction history. This simplifies tax filing and investment tracking.
4. Reduced Paperwork: By removing physical certificates, they contribute to a more paperless investment process, reducing administrative burdens for both investors and institutions.
5. Increased Liquidity: DPs make it easier to buy and sell investments electronically, leading to increased market liquidity and improved investor access to investment opportunities.

Who can become a DP?

Not just anyone can become a DP. SEBI, the Securities and Exchange Board of India, acts as the authority to allow only qualified and responsible institutions to handle your investments. Here's a breakdown of who can become a DP:

Financial Institutions:

• Banks: Major Banks like SBI and HDFC can become DPs, increasing their existing customer base to offer demat accounts.
• Stock Brokers: Many stock brokers, like Swastika Investmart and Tradingo, also act as DPs. This provides a one-stop shop for investors to open a trading account and a Demat account for holding their purchased securities.
• Non-Banking Financial Companies (NBFCs): Companies offering financial services like loans and investments can also become DPs.

Registrar and Transfer (R&T) Agents:

• Companies that specialise in managing share registration for listed companies can become DPs. This allows them to offer complete service to their clients.

Choosing a DP:

Here are some factors to consider when choosing a DP:

• Reputation and Reliability: Look for a DP with a good track record and experience.
• Fees and Charges: Compare the fees associated with account opening, maintenance, and transactions.
• Convenience and Accessibility: Choose a DP with a user-friendly platform and a branch near you.
• Brokerage Services: Consider if the DP is associated with a brokerage firm if you plan to open a trading account with them.