Understanding Depository System
1. What is a Depository?
A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.
2. How is a depository similar to a bank?
It can be compared with a bank, which holds the funds for depositors. A Bank – Depository analogy is given in the following table:
BANK-DEPOSITORY – AN ANALOGY
3. How many Depositories are registered with SEBI?
At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.
4.Who is a Depository Participant?
A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and provides depository services. Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services can be availed through a branch whereas depository services can be availed through a DP.
5. What is the minimum net worth required for a depository?
The minimum networth stipulated by SEBI for a depository is Rs.100 crore.
6. How many Depository Participants are registered with SEBI?
As on September 30, 2008, a total of 711 DPs (266 NSDL, 445 CDSL) are registered with SEBI.
7. What are the benefits of availing depository services?
The benefits are enumerated below:-
- A safe and convenient way to hold securities;
- Immediate transfer of securities;
- No stamp duty on transfer of securities;
- Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.
- Reduction in paperwork involved in transfer of securities;
- Reduction in transaction cost;
- No odd lot problem, even one share can be traded;
- Nomination facility;
- Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;
- Transmission of securities is done by DP eliminating correspondence with companies;
- Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.
- Holding investments in equity and debt instruments in a single account.