Reuse

Earlier the shares were traded in materialized form. Buyers were issued physical certificates of ownership of securities. The certificates were forwarded to the next buyer once the securities are sold.

Now with the popularity of online trading, the securities are converted into dematerialized form. A depository acts as a bank which holds securities like stocks, mutual funds in electronic forms. National Securities Depository Limited (NSDL) and Central Depository Service Limited (CDSL) are two central depositories working in India.

Just like banks, an investor has to open a Demat account with any of the central depositories. But, an investor cannot directly go to a central depository for the opening of the Demat account. It has to be done through a brokerage company which is the Depository Participant (DP) of a central depository. Most of the brokerage companies that offer Demat account opening services and other depository services are DPs of any or of both the depositories.

The major function of the depository is to maintain the Demat accounts and ownership of securities. It facilitates the transfer of shares and money on buying and selling of securities in dematerialized form.

Answered on 2022-05-26