The depository system is one of the fundamental pillars of the Indian stock market. The depository services comprise three players – depositories, depository participants and investors.
A depository is an entity that holds stocks and securities of investors in an electronic form. NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are the two main depositories in India and they are authorised by the Securities and Exchange Board of India (SEBI). A depository is just like a bank where you put your money.
The meaning of a depository participant (DP) is simple to understand. DPs are the agents of NSDL and CDSL. They act as an intermediatory between investors and depositories. DPs need legal authorisation from SEBI to become eligible as stockbrokers.
Role of Depository Participants
DPs perform several functions to ease the burden on investors and depositories:
1. Account Opening
When you want to buy or sell stocks, bonds, IPOs, or any other market security, you need to own a demat account for electronic transactions. DPs help you to open the demat account quickly and conveniently.
2. Transaction Settlement
A DP takes care of every debit and credit transaction in your demat account for hassle-free trading. They deal with all the trading processes to ensure that all your transactions are cleared and settled effortlessly within the stipulated time.
3. Dematerialisation and Rematerialisation
The depository in stock market requires you to maintain your securities in an electronic form for a safe trading experience. If you hold physical shares, DPs can convert them to electronic form through dematerialisation. DPs can also assist you in rematerialisation – the process of converting online shares into physical paper format.
4. Loan Against Shares
You can pledge your shares as collateral against a loan. When you repay the loan, you can unpledge these shares. DPs can execute both pledging and unpledging of shares on your behalf.
5. Transfer of Ownership
The shares in a demat account can be transferred to another owner in two cases – for sale and shareholder’s death. In both cases, the DPs take charge of the transfer process.
6. Freezing and Unfreezing Demat Account
There are two common reasons for demat account freezing – regulatory (as per instruction of statutory authorities) and voluntary (your own will). DPs can assist you manage freezing and unfreezing your demat account as and when the need arises.
7. Corporate Actions
When you invest in a company, it can give you monetary benefits like interest and dividends or non-monetary benefits like bonuses and right shares. These are called corporate actions. DPs undertake the processing and distribution of these actions into your demat account.
A depository participant in India is responsible for providing intermediary services in the stock market. You should always choose a reputed and reliable DP such as Ajmera x-change to manage your securities. Ajmera x-change also offers a free demat account opening facility and other financial services such as investment advisory and portfolio management.
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