A depository is an entity which helps an investor to buy or sell securities such as stocks and bonds in a paper-less manner. Securities in depository accounts are similar to funds in bank accounts.
What are its main functions?
A depository works as a link between the listed companies which issue shares to shareholders. It issues these shares through agents associated with it called depository participants or DPs. A DP can be a bank, financial institution, a broker, or any entity eligible as per SEBI norms and is responsible for the final transfer of shares from the depository to investors. The investor, at the end of a transaction receives a confirmation from the depository.
Benefits of Depository System:
- No danger of loss of share certificates since the shares are credited to your account.
- No possibility of bad deliveries.
- Elimination of all rise associated with physical certificates such as loss, theft, forgery, mutilation etc.
- No need to affix share transfer stamp as it is a paperless trading.
- No postal / courier charges.
- Less brokerage charges.
- After the settlement, pay in and pay out are on the same day for paperless trading which means you get your securities and cash immediately.
- Script less trading helps allocate corporate benefits faster.
- Facilitates pledging and hypothecation of your securities.
- Eliminates the problem of odd lot shares.
- Facility to lock your account if you are abroad.