All You Need To Know About Depository Participants
Demat accounts have revolutionized the way investors trade and invest in equity-linked instruments. Hours of paperwork and hustling with brokers are a thing of the past with the advent of technology. Instead, today, investors trade online and have jargon like demat, depositories and depository participants as part of their trading lexicon.
Let us first understand what demat is
Dematerialized accounts or demat accounts are a method of securely holding shares and stocks in an electronic format. Investors view their portfolio through demat accounts, whereas they can buy or sell stocks online though their trading accounts. A demat account eliminates the risk of holding physical stock certificates and the time-consuming exercise of exchanging physical shares.
Depositories and Depository Participants – the meanings and differences
A depository is an entity responsible for the maintenance of securities electronically and the facilitation of trading of these securities. They empower investors to own, maintain and exchange securities online. There are two main depositories in India – The National Securities Depository Limited (NSDL) and The Central Depository Services Limited (CDSL). These depositories are promoted by National Stock Exchange and Bombay Stock Exchange respectively.
Depository Participants (DP), on the other hand, act as a link between depositories and the investors who hold securities. A DP is an entity registered with the Securities and Exchange Board of India (SEBI) and is associated with either the CDSL or the NSDL or both. DPs play a crucial role in linking investors with depositories. Entities like big brokerage firms, Banks and similar other financial institutions serve as DP.
Role of a Depository Participant
- DPs convert physical shares into electronic format
- DPs monitor and track trade transactions linked to securities
- Act as a link between the Depositories and investors.
- Ensure investments held electronically are safe and secure
- Securely facilitate transactions and trade transfers
- Maintain the record related to ownership and pledging of shares
Depository Participants perform the above functions in exchange for a nominal transaction fee levied on the investors. Depending on the DP and the nature of the demat account opened, the fees charged could vary. There could be a fixed annual charge levied by DPs or as a percentage of the value of transactions executed over some time.
Three factors you must consider before choosing a DP
1. Technology and trading platforms offered by the DP
Ensure that your DP has a robust digital platform that facilitates seamless execution. Look for a DP that provides both, desktop as well as mobile platforms from where you can remotely access your demat account from any corner in the world.
2. The reputation of the DP
It is always recommended that you select a DP that has a good market reputation. Opting for DPs with years of experience can go a long way, since they would already have the necessary expertise. Consider a DP that has a robust customer service platform and can rsolve your concern quickly
3. The charges levied by the DP
Demat account charges vary from one DP to another. An investor must consider the implications of all costs levied before choosing a DP. While many DPs offer free demat accounts, they levy a few other charges that can increase your expenses in the long term. As such, consider the charges levied by the DP and avoid selecting one that seems too good to be true.
In case you already have your demat account with a depository participant, but are unhappy with the services provided, you can always change your DP. You can simply close your demat account with your current DP and open another with a different DP. Remember, there are no restrictions on the number of demat accounts you can open. The new DP can also assist you in transferring your securities from your former DPs platform.
Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.