Depositories are integral institutions in the Indian Capital Market and their functionality can be compared to banking entities.
Their role comes into play from the time an investor makes a decision on investing. In India, there are two depositories namely National Securities Depository Limited (NSDL) or Central Depository Services (India) Limited (CDSL) that are registered with SEBI.
What functions depositories perform in India?
Both NSDL ans CDSL, facilitate dematerialization of shares i.e. held the shares in electronic form. So, in a way depository is held accountable for safe-keeping of your portfolio of securities.
On instruction of the account holder,depositories also facilitate transfer of securities from one account to the other. So, transfer of ownership of securities is effected by depositories.
With all the details concerning your personal details, scrips as well the number of units of each scrip held by the individual, several corporate actions or transactions such as the issue of bonus shares or annual dividend are executed via depositories acting as an important intermediary in the entire process.
So, the depository other than acting as a safe-keeper of your securities provides services pertaining to the transaction in securities.
Depositories provide investor services through Depository Participant
The two depositories in India provide their services to large investor base through depository participants.
As per SEBI rules, banks, financial institutions as well as trading members registered with SEBI are eligible to act as depository participants (DP).
Services offered by depositories
Providing their services through depository participants, the depositories offer the major service of dematerialization of shares. With dematerialization is eliminated the risk of false or fake securities, bad delivery etc.
Facilitates share transfer from one DP account to the other on an immediate basis without levy of stamp duty.
Nomination facility is made easy.
Any change in address of correspondence that is registered with the DP automatically gets registered with all the companies in which an individual holds share
Facilitates holding of different securities such as debt, equity or government securities in a single account.
So, depositories hence provide a convenient and easy way of consolidation of accounts/folios.