A depository is a financial intermediary which provides Demat account services. Demat account is the place where your shares are kept in a dematerialized form. demat and trading accounts are interlinked. when you start an account trough any brokers, the broker opens a Demat account under the depository on behalf of the client. you can access the Demat account only with the help of a broker. an effective and fully developed depository is essential for maintaining and enhancing the functions of The capital market.
in India there are two major depositories are there,
- NSDL- National Securities Depository Limited
- CDSL- Central Depository Services Limited
What is the need for a depository?
A depository eliminates the risk associated with holding physical securities. Earlier, the buyer would have to keep checking if the shares have been transferred safely to his account and ensure that theft, damage, or loss has not happened. After the depository system came about, such risks have been greatly reduced since the shares are held in and transferred in an electronic manner. They also reduce the paperwork involved in trading and fasten the transfer of shares. In 1998, Demat or electronic trading was made compulsory for institutional investors, which led to a spike in the overall trading volumes in the Indian market. Foreign investors felt more confident about trading in the Indian market due to the depository system as there were far fewer incidents of forgery, delay, and unscrupulous transfer of shares.
What are the main functions of depositories?
A depository works as a link between the listed companies that issue shares and shareholders. the main function of the depository is to keep the shareholder’s shares in the dematerialized form. a broker opens a Demat account under a depository on behalf of the client. and the securities are stored in that account in a dematerialized form. the main functions of the depositories are listed below.
- De materialization and re materialization.
- maintenance of investors account.
- settlement of the market transactions.
- off-market transfers.
- inter-depository transfers.
- nomination facilities.
- transmission of shares.
Depository participants(DP) are the agents of the depository.they are the intermediary between depositories and investors. A depository participant can be a bank, brokerage house, financial institution, or any similar entity.
National Securities Depository Limited-NSDL
National Securities Depository Limited is an Indian central securities depository based in Mumbai. It was established in August 1996 as the first electronic securities depository in India with national coverage.NSDL stands for National Securities Depository Limited. It is India’s oldest and largest depository. The term “depository” refers to the organization meant for holding and safeguarding the securities that are traded in the securities market. NSDL is the first & largest depository in India established on November 8, 1996, which is basically formed for the purpose of handling the securities held in dematerialized form in the Indian capital market.
It contains the securities in electronic form as opposed to the previous method of recording paper transactions of shares, bonds, and other financial instruments. we can compare the NSDL to a bank. A bank holds the investor’s money, while the NSDL keeps stocks, shares, bonds, and other classes of securities.
When investors purchase securities, they will automatically credit to the depository account, and when we sell those securities, they will automatically debit from the depository account. Similarly, if a company wants to know about the investor’s information for awarding dividends, rights, or any other notification, it will ask the depository about the investor’s details.
Benefits of holding an account in NSDL
NSDL will address issues arising because of ownership of securities held in physical form and its transfer. Some of the benefits of the subscription from the organization are as follows:
- Faster settlement and more liquidity.
- Immediate transfer and registration of securities.
- Elimination of risks related to physical certificates.
- No bad deliveries.
- Reduction in brokerage.
- Ease in the change of investor details.
- Simplified process of transmission.
- Faster disbursal of non-cash corporate benefits.
- Reduction in handling huge paperwork.
- Simplified process for the sale of securities held on behalf of a minor.
Safety measures by the NSDL.
- Recording of transactions at the central NSDL server.
- Selection criteria decided by SEBI for DP.
- Periodic Statement.
- Control on account entries.
- Periodic checking/inspection.
- Random counter checks.
- Control on account entries.
- Certification in Depository Operations.
- Insurance Cover by NSDL.
- Protection of data.
Value added services of NSDL
NSDL provides various other services like hypothecation of securities, pledge, automatic delivery of securities to clearing corporations, distribution of various cash and non-cash benefits, stock lending, demat of NSC/KVP, demat of warehouse receipts, etc. Some of the services provided are as under:
- Pledge or Hypothecation of securities.
- Automatic Delivery out Instructions.
- NSDL CAS (Consolidated Account Statement).
- SMS Alert.
- Dividend Distribution.
As a part of value added services, NSDL also provides various online services known as e-services. These services facilitate faster and reliable execution of transaction. The various e-services provided by NSDL are:
- STEADY (Securities Trading Information Easy Access and Delivery).
- IDeAS (Internet-based Demat Account Statement).
- SPICE (Submission of Power of attorney based Instructions for Clients Electronically).
- Depository Account Validation (DAN).
Promoters of NSDL.
- IDBI Bank (Industrial Development Bank of India)
- UTI (Unit Trust of India)
- NSE (National Stock Exchange)
Principal shareholders of NSDL
- HDFC bank
- Standard charted
- Oriental Bank Of Commerce
- Axis bank limited
- Citi bank
- Deutsche Bank
- State Bnak of India
- Canara bank
- Dena bank
Central Depository Services Limited- CDSL
Central Depository Services (India) Ltd (CDSL), is the first listed Indian securities depository headquartered at Mumbai. The main function of CDSL is to facilitate the holding of dematerialized securities enables securities transactions to be processed by book entry. CDSL facilitates holding and transacting in securities in the electronic form and facilitates settlement of trades on the stock exchange. These securities include equities, bonds, exchange-traded funds, etc. Central Depository Services (India) Limited (CDSL) was initially promoted by BSE which thereafter divested its stake to leading banks. CDSL received the certificate of commencement of business from the SEBI in February 1999.
CDSL was listed on June 30, 2017, on the National Stock Exchange (NSE) through Initial Public Offer (IPO) and thereafter became the first and the only depository to get listed in the Asia-pacific region and second in the World
Benefits of holding Demat securities in CDSL:
- The securities will immediately transfer to the investor’s account as soon as the payment transfer to the company’s account is done. There is no need for the investor to wait for the registration process from the company or its Registrar.
- The investor need not be skeptical about the genuineness of the securities purchased as the securities in the depository cannot be returned under objection for any reason, and it also eliminates the risk of bad delivery.
- As the share certificates are in an electronic format, the investor is safe from the risk of theft, loss, or damage to the physical share certificates.
- No stamp duty is applicable for investors when transferring securities in dematerialized format.
- The stock exchanges follow the method of the T+2 rolling settlement cycle, i.e. settlement of trades will do on the 2nd working day from the trade. This action is possible because dematerialized securities have paved the way for liquidity and swift transfer of securities.
- Companies can directly credit their investor’s account in case of a bonus issue or rights issue of shares.
- The CDSL also sends the investor a statement that consolidates the position of all their holdings. This would enable investors to make informed decisions about their financial strategy.
- Any update or changes in the personal information or transmission of the BO can be directly updated with the CDSL. Single standing instruction to the CDSL would help the investor update their details with all companies in which they have a vested interest.
|Number of Depository Participants||594|
|Number of branches with LIVE Connectivity||212|
|Number of cities/ towns with LIVE connectivity||107|
|Number of locations with LIVE connectivity||307|
the major promoter of the central depository cervices is BSE-bombay stock exchange.
Following are the major share holders of CDSL.
- HDFC Bank
- Standard Charted Bank
- Canara Bank
Depositories plays a key role in the stock market. they will keep our share in materialized form,safely. in this post we discussed about the basics of depositories and two Indian depositories NSDL and CDSL. i hope this post will help you to understand about indian depositories.