A Depository deals and hold with funds and shares for depositors and it can be compared with a bank. An comparison between a bank and a depository are shown here:
- Banks holds cash whereas depository holds securities.
- Banks transfer funds from accounts on the instructions of the account folders whereas Depository transfer securities.
- Banks are safe places to save your funds whereas Depository is safe place to hold your shares.
Depositories in India:
In India we got two depositories provide dematerialization of securities. They are
- National Securities Depository Limited (NSDL) and
- Central Depository Services Limited (CDSL).
Benefits of having a depository:
The benefits of participation in a depository are:
- Securities are transferred immediately
- No stamp duty on transfer of securities
- Eliminates the risks (bad delivery, fake securities, etc.) associated with handling physical certificates
- Paper works are reduced massively
- Ease of nomination facility
- Change in address recorded with DP gets registered electronically with all companies in which investor holds securities eliminating the need to correspond with each of them separately
- Transmission of securities is done directly by the DP eliminating correspondence with companies
- Convenient method for consolidation of folios/accounts
- A single account to hold equity, debentures and Government securities
- Automatic credit of shares, arising out of split/consolidation/merger etc.
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