• Dematerialization of shares is optional and an investor can still hold shares in physical
form. However, to sell the shares through the stock exchanges one has to dematerialize it
before he sells it and similarly, if an investor purchases shares, the delivery of the shares
will be in the demat form.
Meaning of a Depository
• A Depository (NSDL (National Stock Depository Limited) & CSDL (Central Stock
Depository Limited) ) is an organization like a Central Bank where at the request of a
shareholder his securities are held in the electronic form through the medium of a
• The Depository is different from a traditional custodial service because a transfer of
beneficial ownership can be done directly by a depository whereas a custodian cannot do
this. The main objective of a Depository is to minimize the paper work involved with the
ownership, trading and transfer of securities.
Meaning of a Depository participant
• A Depository Participant is one with whom an account has to be opened to trade in the
electronic form. While the Depository can be compared to a Bank, a Depository
Participant is like the branch of a bank with whom you can have an account.
• A Depository Participant (DP) is also the account holder’s representative (agent) in the
depository system providing the link between the Company and the account holder.
Operations of a Depository System
• The Depository System operates in the lines of a banking system. A bank holds funds in
its accounts and transfers funds between accounts whereas a Depository holds securities
in accounts and transfers securities between accounts. In both systems, the transfer of
funds or securities happens without the actual handling of funds or securities. Banks and
the Depository are accountable for the safe keeping of funds and securities respectively.
Benefits of having a demat account
a. Shares of companies can only be traded if they are dematted. SEBI has made demat
mandatory on most of the traded scrips, and therefore elec