There are two depositories in India, the National Securities Depository Limited and the Central Depository Services (India) Ltd. The depositories are regulated by the Securities & Exchange Board of India Ltd. and are governed by the Depositories Act, 1996. A client can open his account with either depository (through a depository participant) since both depositories are inter-connected to each other and are also connected to both the premier exchanges, NSE and BSE.
Function of a Depository
In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.
The depository system also allows distribution of dividends through the RBI’s ECS system, whereever the participating company has agreed to such service. Other entitlements such as bonuses, split-ups are also directly effected by the depository into the investor’s account.
|The following can be held in the depository (electronic) form:|
|Shares (listed or unlisted)|
|RBI Relief Bonds|
|Government Securities (through a Primary Dealer)|
|Units of Mutual Funds|
|Money Market instruments|
Benefits of Depository
In the depository system, the ownership and transfer of securities takes place by means of electronic book entries which are facilitated by executing the ‘demat request slip’ (which is similar to a cheque leaf) or through direct instruction system on the internet.
- elimination of bad deliveries
- elimination of all risks associated with physical certificates
- no stamp duty
- immediate transfer and registration of securities
- faster settlement cycle
- faster disbursement of non-cash corporate benefits like rights, bonus, etc.
- reduction in brokerage by any brokers for trading in dematerialized securities
- reduction in handling of huge volumes of paper
- periodic status reports
- elimination of problems related to change of address of investor, transmission, etc.
- elimination of problems related to selling securities on behalf of a minorease in portfolio monitoring