Every new investor who enters the market will come across the term – Depository Participant. No investor in the equity marketcan engage directly in trade with the stock exchange and must instead do so through an intermediary – referred to as the Depository Participant or DP. The role of the Depository Participant is multi-fold, aiding the stock market with seamless transactions and, at the same time, permitting investors to freely trade in the stock market. This article will define who and what a Depository Participant is, the types of Depository Participants in India, and the functions they undertake.
What is a Depository Participant?
A Depository Participant, commonly referred to as a DP, is the registered stockbroker of a particular depository. A depository refers to the entity that retains the investor's securities, going through the depository participant, aiding the investor to trade freely in these securities. These securities are held in debentures, bonds, mutual funds, shares, and securities, all in electronic formats. Put simply, a Depository Participant acts as an intermediary between the company that issues the shares, and the shareholders, helping investors set up and maintain their Demat accounts.
Types of Depository Participants in India
In India, there exist two kinds of Depository Participants:
- National Securities Depository Limited (NSDL): The NSDL is backed by the National Stock Exchange, Unit Trust of India, and Industrial Development Bank of India, with services being executed by the DP, Clearing Corporations, and Share Transfer Agents. To provide services to investors, the DPs must register themselves with the NSDL. Once done, the investors are required to undertake the registration process with the DP to use services such as dematerialization and rematerialization of securities in the market.
- Central Depository Services (India) Limited (CDSL): The CDSL is backed by the Bombay Stock Exchange, Bank of India, and State Bank of India, aiding DPs registered with them to facilitate investors to undertake a range of trading services provided by the CDSL.
What are the Functions of a Depository Participant?
A Depository Participant, registered under the NSDL or the CDSL, is liable to undertake the following functions:
- Help investors open accounts.
- Facilitate the Demat process of converting physical certificates into electronically backed securities.
- Facilitating the Remat process of converting electronically backed securities into physical certificates.
- Enabling the transfer of securities.
- Enabling the pledging and unpledging of securities to grant loans against shares.
Conclusion
Before choosing a DP, every investor must consider three factors – (a) the technology and trading platforms offered by the DP, (b) the reputation of the DP, and (c) the charges levied. For further assistance with opening a Demat account, we at Motilal Oswal offer you simple solutions just a click away.
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