The Depository Participant for a Demat Account
Investing in the stock market will provide you with high returns. With the right market conditions and the right investment strategy, you can easily get high returns with a small investment.
However, when investing in this financial endeavour, there are certain things you must be first aware of. The first thing you must be aware of is the demat account and how it functions. A demat account can be held by any individual, with the assistance of the depository participant.
So how does this depository participant function and why is it important to the functioning of the demat account? Given below are the required details about it.
Who is the depository participant ?
A depository participant is a financial entity that holds the account holder’s stocks and records. It also receives all the trades for purchasing or selling of any stock. The depository participant, also known as the DP opens your account with an allocated account number and DP ID number. Whenever an account holder purchases or sells a stock, this ID number must be mentioned. One of the main advantage of the DP is that the investor can hold his whole portfolio of mutual fund units, shares and other securities in a single demat account. In India, there are depositories namely the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL).
What are the functions that the depository participant performs ?
The DP functions as a financial entity that facilitates the dematerialization of shares that are held in a demat account. In other words, the DP ensures the safe keeping of an account’s portfolio in securities. With the instructions given by the account holder, the depository participant can facilitate the transfer of securities from one account another. Therefore, the transfer of ownership of securities is affected by the depository participant. The DP also acts as an important intermediary. Any decision pertaining to transactions such as bonus shares of annual dividend are executed via the depository participant.
What are the services provided through the depositories ?
The depositories offer the major service of dematerialization of shares. Through dematerialization, there is an elimination of certain risk, such as false securities, bad delivery and other similar ventures. It can also share transfer from one DP account to another, on an immediate basis, without any requirement of stamp duty. It also facilitates nomination facility, making it extremely easy. If there is any change in the address of the correspondence that is registered with the DP is automatically gets registered all other companies where the account holder holds any shares. The depositories also facilitate the holding of different securities such as debt, equity or other government securities in a demat account.