Similar to Bank Accounts

• Depository accounts are similar to bank accounts

• Just as a bank holds cash, fixed deposits, and recurring deposits, a depository holds securities like shares, holdings, and government bonds

Key Benefits

• Convenient and secure way to hold securities

• Easy to transfer and trade securities

• Reduces risk of loss or damage to physical certificates

• Facilitates quick settlement of trades

In India, the two main depositories are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Depositories: Facilitating Secure and Efficient Shareholding

Depositories act as a crucial link between:

• Listed companies that issue shares

• Shareholders

Depository Participants (DPs)

• Agents of the depository

• Responsible for transferring shares from the depository to investors

• Can be brokers, banks, financial institutions, or eligible entities as per SEBI norms

Benefits of Depositories

• Eliminate the risk of holding physical securities

• Reduce paperwork and transfer time

• Ensure secure and electronic transfer of shares

• Confirm share ownership to investors

• Minimize risks of theft, damage, and loss

Efficient Shareholding

• Depositories hold shares in electronic form, making it easier to manage and transfer shares

• Investors can access their shareholding information easily

• Depositories ensure accurate and timely transfer of shares, reducing the risk of fraud and errors.

Impact of Depositories on Indian Markets

• The introduction of compulsory electronic trading in 1998 led to:

  • Increased trading volumes

  • Boost in foreign investor confidence

• The depository system resulted in:

  • Significant reduction in forgery, delay, and fraudulent share transfers

  • Dematerialization of physical shares, enabling electronic transfer in demat accounts

  • Time and paperwork savings

• The Depository Act of 1996 led to the establishment of:

  • National Securities Depository Limited (NSDL)

  • Central Depository Services Limited (CDSL)

NSDL and CDSL are the two depositories in India, promoted by prominent stock exchanges and financial institutions.

The depository system has transformed the Indian securities market, enhancing efficiency, security, and investor confidence.