These
institutions provide safety and administration services for investors’
securities. They also help provide liquidity to the stock markets, invest in
multiple securities, and lend to individuals, among others.

Find
out more about the types of depository, and how they
immensely contribute to the financial market.

Depository
Participants

All
depositories also feature their own Depository Participants (DPs), who act as
their agents and conduct transactions on their behalf. These help investors
open Demat accounts and manage their assets securely and efficiently.

DPs
can either be banks, NBFCs, stockbrokers, or organizations authorized by the
Securities and Exchange Board of India (SEBI). In return for their services,
DPs usually charge a Demat account fee and transaction fees. Investors will
also be able to view their Demat account holding statement on
the respective DP’s website.

The
ideal way to go about choosing the best DP for your investment requirements is
to compare their features and services, along with the various charges/fees.
Some may even feature hidden charges, so it is recommended to have a look at
all documents to ensure a smooth account opening process.

Here
are the basic functions of a depository in the stock market:

• Risk Reduction: Before
  depositories and Demat accounts, investors were required to purchase physical
  copies of share certificates and hold them. Now, securities can be stored in a
  dematerialized form, which helps bring down the risks of loss, theft, and
  forgery of documents while transferring them.

• Links Companies to Investors: Depositories
  can serve as a link between investors and companies since they issue financial
  securities through DPs, and help create Demat accounts, among others. Investors
  can also utilize a Demat account holding statement to get a detailed insight
  into the shares held by them.

Additionally,
depositories keep investors aware of matters such as transfer in ownership,
corporate action, periodic holding of investors, and more.

• Liquidity Creation in the Market: Investors
  can receive loans against their securities or mortgages by depositories, which
  allows them to buy other securities while paying interest. Depositories also
  lend securities to various businesses and institutions, which helps them earn
  more revenue.

•  Cost Savings: By
  conducting trades digitally, investors can enjoy many cost-saving benefits such
  as no brokerage or courier charges, lower transaction costs, reduced paperwork,
  and much more.

• Investor Safety Provisions: Depositories
  frequently review and monitor several things to safeguard investors. These
  include routine inspections of a DP’s activities, ensuring end-to-end
  encryption of transactions, and taking up insurance policies to help cover
  investors’ losses due to omissions, errors, etc.

How do
Depositories work?

To
be able to trade in stocks, you will be required to open a Demat account, which
is a service offered by the two types of depositories via their DPs. The
purchased shares are credited to your Demat account, and the offloaded ones are
debited from there

However,
it is important to note that the shares and securities are actually held by the
depositories, as Demat accounts are simply intermediaries. Depositories also
help distribute companies’ dividends to their shareholders.

Firms
can gather information on shareholders through them and initiate transfers
between two accounts. This is a much easier process than having to manually
transfer share certificates in the past.

Depositories
have a high amount of significance in all stock markets due to the
indispensable functions they carry and their overall benefits. Now that you
have a much better idea about what depositories are and how they function,
don’t wait any further and get started with investing, today.