The share market is as vast as an ocean and, arguably, as deep and complex too. And the ever-rising incidence of financial frauds leads to a severe decline in investor sentiment and their zest to trade in the share market. However, if your securities are held in a demat account with a leading depository participant, then you need not worry about the safety of your investments in the share market.
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What are depository participants?
As their name suggests, depository participants (DPs) are the registered stockbrokers of depositories in a country. A depository is, in turn, an organisation that holds your securities through the layer of a depository participant. In India, there are two main depositories, namely:
- The Central Depository Services Limited (CDSL);
- The National Securities Depository Limited (NSDL).
A depository participant serves as an intermediary between the aforementioned depositories and investors in the share market. Therefore, DPs are, in many ways, similar to your bank's home branch, whilst the depository is the bank. Your securities are held with a depository participant through a demat account. You can open a free demat account and engage in the safe and transparent trade of securities in the share market.
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What happens to your shares if your depository participant decides to shut down?
Considering the rapidly evolving landscape of the share market, there is very little that is set in stone. This volatility may cause you to ponder over the possibility of your depository participant closing its business off. It is natural to wonder what will happen to your shares held with the DP in such a scenario. Will those shares be lost? The simple answer is no.
Although your depository participant is the holder of your dematerialised securities through your demat account, it is not the organisation that holds the account. Your demat account is held by either the NSDL or the CDSL (as selected at the time of the opening of the account). Therefore, even if your depository participant were to shut down, your demat account and the securities held therein shall remain safe with one of the depositories mentioned above.
Just like the closure of the bank branch where your savings account, fixed deposit account, or Public Provident Fund Account is held does not entail the loss of the funds contained therein, similarly the closure of your depository participant due to any reason does not, in any way, endanger your demat holdings.
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What can you do if your depository participant shuts down?
In the unlikely event of the depository participant with which you have a demat account shutting down, you need not worry about the safety of your securities. All you need to do is file a claim with the depository with which the demat account is registered, either the CDSL or the NSDL, and the organisation will do the needful. In any event, your dematerialised securities and investment shall remain completely safe.
It is highly unlikely for a depository participant to shut shop, that too without ample prior notice. However if that happens, you can simply raise a claim with the concerned depository and stay completely worry-free about your demat holdings in the share market. It is, however, advisable to opt for a depository participant after extensive research.
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