Comparison of a Depository with a Bank

Benefits of having a Depository are as follows:

• Holds securities in electronic form, thus reducing paperwork

• Applies for IPOs and other public offerings

• Transfers securities in an immediate manner

• Risks that are associated with physical certificates such as bad delivery and fake securities are absent

• Reduces transaction cost

• Eases nomination facility

• Direct transmission of securities by the DP to avoid correspondence with companies

• Records any corporate actions automatically

Depositories in India

There are 2 depositories in India –

• The National Securities Depository Limited [NSDL]

• Central Depository for Securities Limited [CDSL]

Facilities offered by NSDL and CDSL

• Dematerialization i.e. converting physical certificates into their electronic form

• Rematerialization i.e. converting securities in DeMat form into physical certificates

• Assisting in repurchase / redemption of mutual fund units

• Electronic settlement of trades in stock exchanges connected to NSDL

• Pledging or hypothecation of the dematerialized securities against loan

• Electronic credit of securities allotted in public issue, rights issue

• Receipt of non-cash corporate benefits such as bonus, in electronic form

• Freezing of DeMat account to avoid debits from the account

• Nomination facilities for DeMat accounts

• Services related to change of address

• Effective transmission of securities

• Other facilities such as holding debt instruments in the same account or availing stock lending / borrowing facility

Depository Participants

Services provided by NSDL and CDSL are carried out through their agents known as Depository Participants [DPs]. DPs are appointed by depositories after an approval from SEBI. According to SEBI regulations, 3 categories of entities such as banks, financial institutions, and SEBI registered trading members qualify for becoming DPs

Presently, there are 327 DPs in India. Few of them are:

• Bank of India

• Bank of Baroda

• Kotak securities

• Motilal Oswal

• Reliance Capital

• UTI

• Yes Bank

Selecting DPs

Few important factors while selecting a DP are:

• Convenience: Distance from office or residence

• Comfort: Reputation of the DP, past association with the organization, whether the DP is in a position to give the specific service you may need

• Cost: The service charges levied by DP and the kind of services offered.