Money is to Bank while Share is to Depository
A Depository is an organization like a Central Bank where the securities of an investor are held in electronic form, through Depository participants.
There are two depositories in India – National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CDSL).
Who is Depository participants?
A Depository Participant (NSDL & CDSL) a medium through which the shares are held in the electronic form. They are acting as a link between the investor and the company through the Depository.
Let’s understand how depository system works?
The Depository system functions largely like the banking system. Let’s understand in simple way:
- A bank holds funds in accounts whereas; a Depository holds securities / shares in accounts for its clients.
- A bank transfers funds between accounts whereas; a Depository transfers securities between accounts.
- In both systems, the transfer of funds or securities happens without the actual handling of funds or securities.
- Both the banks and the Depository are accountable for safe keeping of funds and securities respectively. The company has to sign an Agreement with NSDL/CDSL (the depositories) and install the necessary hardware/software for operations.
What is the Function of a Depository Participant?
A Depository Participant (DP) acts as trade facilitator. The primary functions of a depository participant are outlined below:
- Facilitate trades and security transfers seamlessly.
- Convert paper shares into demat accounts.
- Keep a record of trade and other equity investment transactions.
- Make new / follow up security issues and offers available to its investors.
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