What is depository? and how is it similar to a bank?

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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