Depository Participant – Everything You Need to Know

In the stock market, DP stands for “depository participant.” A depository participant (DP) is a representative of an entity that offers services associated with securities transactions; these entities are usually banks, brokerage houses, or financial institutions. Transforming physical shares into dematerialized form and vice versa, a DP essentially serves as a link between the investor and the depository.

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Who Is A Depository Participant?

A depository participant can be described as a mediator between investors and traders and CDSL and NSDL. A location that performs transactions and holds money that resembles a bank is referred to as a depository participant. A depository participant serves as a storage of assets like securities rather than cash. You can open a Demat account with a DP or depository participant, keep securities in it, and trade with them afterwards because opening a trading account may link your accounts. A depository participant assists you in effectively managing your assets by acting as an agent of the NSDL or CDSL, if applicable.

Depository Participant Example

Example 1

A stock broker with thousands of clients is called Stock-XYZ. They have ten years of experience as stockbrokers. In celebration of their tenth anniversary, they became a DP and registered with NSDL. They complete the application and send in the necessary paperwork. As a result, the NSDL and SEBI approve stock-XYZ. Following their service expansion, they were able to provide their clients a variety of services and bring on 200 more investors.

Example 2

The framework for modifications to the control of market intermediaries, including share transfer agents, research firms, stock brokers, depository participants, and investment advisers, has been updated by SEBI. The revision seeks to expedite the approval procedure for suggested modifications to an entity’s control. The “fit and proper person” criteria must be strictly adhered to, SEBI must be contacted before requesting any special permissions from the National Company Law Tribunal (NCLT), among other new measures.

Role of a Depository Participant

Now that you have a better idea of what a depository participant is, you may be wondering why you need one. Understanding the function of depository participants—which are outlined below—will help to best explain this:

• Eliminates Fraud: A DP’s electronic operations make them safe and eliminate the need for you to take precautions against physical asset loss or theft.
• Quick Processes: Purchasing assets, storing them, and trading with them all take less time now than they did in the past, which is consistent with depository participants operating in a transparent and effective manner.
• Removes Irrelevant Paperwork: In the past, trading generated a significant quantity of paperwork since investors had to keep track of their holdings. All of this is easily and digitally maintained by a depository participant.
• Managing Bulk: Since depository participants conduct all of their activity online, it is simple to manage a large number of investors.

Types of Depository Participants

Depository participants can be classified according on which depository they are registered with. National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the two depositories in India.

NSDL

The National Stock Exchange established NSDL in 1996, with its main office located in Mumbai. The Industrial Development Bank of India and the Unit Trust of India are among its promoters. Business partners are DPs who have registered with NSDL and are required to have a minimum net worth of Rs. 3 crores. NSDL’s commercial partners additionally include clearing corporations of stock exchanges and share transfer agents. To use the services, investors must first open a depository account with the registered DPs. Aditya Birla Money Limited and Bajaj Capital Limited are two examples.

CSDL

CSDL has its headquarters in Mumbai and was founded by the Bombay Stock Exchange in 1999. The Bank of India and the State Bank of India are two of the promoters. DPs who wish to offer services to investors must first register with CSDL. Investors can communicate with DPs to get account details, balances, and other information. The criterion for minimum net worth also applies here, although it is ₹2 crore. Examples include Andhra Bank and 5paisa Capital Limited.

Factors you must consider before choosing a DP

The reputation of the DP

It is always advised that you choose a DP with a solid reputation in the industry. Choosing DPs with years of experience can be beneficial because they have the requisite knowledge already. Think about choosing a DP that can promptly address your issue and has a strong customer support platform.

Technology and trading platforms offered by the DP

Make sure the digital platform supporting your DP is strong enough to enable smooth implementation. Choose a demat provider (DP) that offers remote access to your account from anywhere in the world via both desktop and mobile platforms.

The fees assessed by the DP

Different DPs charge different amounts for demat accounts. Before selecting a DP, an investor needs to weigh the effects of all charges. Even while a lot of DPs provide free demat accounts, they still impose additional fees that can raise your overall costs. Therefore, take into account the fees assessed by the DP and refrain from choosing one that is too good to be true.

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Conclusion:

You always have the option to switch your depository participant (DP) if you currently have your demat account with one but are dissatisfied with the services offered. You can easily start a new demat account with a different DP after closing your existing one with your current DP. Recall that you are able to open an unlimited number of demat accounts. You can transfer your securities from your previous DP’s platform with the help of the new DP.

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