What Is A Depository? How To Select Them? What Are Their Benefits?

A depository in the sense can be compared to a bank. A depository holds securities like shares, debentures, bonds, Government Securities, and units, of investors in electronic form. Apart from holding securities, a depository also provides services related to transactions in securities. A depository interfaces with the investors through its agents called Depository Participants (DPs).

Who can be a depository?

Depository or DP is a representative in the depository system on behalf of the shareholder. DP only intimates to the shareholder periodically the securities account held by the customer. As per SEBI regulations, financial institutions, banks, stockbrokers, etc., can be Depository Participants.

How to avail a DP?

If an investor wants to avail the services offered by the DP, the investor has to open an account with a DP. This is similar to opening an account with any branch of a bank in order to utilize the bank's services. The selection of DP should be based on the reputation, customer's convenience and service charges levied.

What are the benefits of depository?

Lesser risk

The risks associated with physical certificates such as loss, theft, mutilation of certificate etc. are eliminated with the presence of depository. Depositories and their role in the Indian Capital Market

 

No paperwork

It eliminates handling of huge volumes of paperwork involved in filing the transfer deeds and lodging the transfer documents and share certificates with the company. Change in address recorded with depository gets registered electronically with all companies. So that investor holds securities need not correspond with each of them separately.

Quick transfer

There are immediate transfer and registration of the securities (at the end of every settlement cycle, which is 4 working days i.e. T+3) and there is no delay on account of processing time. Demat Account: 6 Must-Know Points Before Opening An Account

Fast settlement

The system facilitates a faster disbursement of security holding benefits like rights shares, bonus shares etc.It leads to faster settlement cycle and faster realization of sale proceeds so the fund of the investor is not tied up unnecessarily.

Reduction in stamp duty

The stamp duty on transfer of securities, which is 0.25% of the consideration on transfer of shares in physical form, is not applicable.

Reduction in costs

There is a reduction in rates of interest on loans granted against pledge of dematerialized securities by various banks. Reduction in brokerage for trading in dematerialised securities and reduction in transaction costs in dematerialized securities as compared to physical securities are additional benefits. What Is The Difference Between NSDL And CDSL?

 

 

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