Sheena was pouring over her father’s investment paperwork and it wasn’t easy. Her father is set in his ways of doing things and a firm believer in tradition. “These papers are in a mess! How do I make him understand?” She kept thinking this over-and-over while she kept trying to make sense of it all. Finally, she decided, and went to her father with a proposition. “Dad, I think you really need to organise your investments.” Her father looked at her the same way all Dads look at their daughters, “why on earth would I want to ‘organise’ my investments? They’re already in order.” Sheena took a deep breath, she knew if she didn’t clear the air now, the conversation would be delayed and later forgotten. “Dad, have you ever thought of opening a Demat Account? It would make your life so much easier. Imagine being able to see all your investments organised in one place. You can end endless paperwork and minimise countless trips to the broker.” Please at least consider it?” Sheena’s father became thoughtful, he realised, she was right. “Ok, tell me what to do. But, before that, you’ll have to explain these things to me. I have read words like ‘depository’ and ‘depository participant’ and these are confusing.” Sheena began to coach her Dad about making his investments paperless. Let’s see how she explained it.
A Demat (Dematerialised) converts stocks and other equity-oriented investments from paper to electronic form. It allows you to buy/sell or even view your portfolio. It’s like viewing a savings bank account online, except this one is only for investment-related transactions. Most banks and brokerage houses offer these accounts at competitive operating costs.
How Do You Open a Demat Account?
Opening a demat account is now easy and quick, all that Sheena’s father needs to provide are his documents:
• PAN Card
• Address Proof
• Identity Proof
He may have to issue a cheque from his savings account, so he can operate the account as soon as possible. A nominal brokerage is applicable on all trade transactions, some institutions offer competitive rates for regular or high-volume trades. Every transaction in this account is registered and monitored by a depository participant (DP).
Sheena’s Dad gestured for a pause, “How does a depository and participant get involved with a demat account?” Sheena smiled and replied “Dad a depository is different. Let me explain.”
Difference Between a Depository and Depository Participant:
A depository is an entity which will help an investor like Sheena’s Dad, buy or sell securities like stocks or bonds online. While a depository participant is the link between companies which issue securities, and depositories.
Sheena’s Dad said “Ok, I think I have some idea of, what is depository participant? So, let’s say I go to my bank and request for a demat account. My bank will be the DP, right?” “Yes Dad!”, Sheena replied. “Ok, I got that part, but the one about depository participant meaning is still unclear.” So, Sheena elaborated on her previous explanation.
A DP can be a bank, financial institution, brokerage house, or similar entity. To be eligible, it must be registered with the Securities and Exchange Board of India (SEBI) and comply to its norms and guidelines.
In India there are primarily 2 depositories which facilitate security trading from issuer to investor, and/or from one investor to another. They are: National Securities Depository Limited (NSDL), which is promoted by the National Stock Exchange. The other is, Central Depository Services Limited (CDSL) which is promoted by the Bombay Stock Exchange.
“Ok, now I have a better idea, so my bank is not only a depository participant, it also acts like a broker.” “Yes Dad!”, Sheena said.
So, a DP is not only a link between companies that issue securities, and depositories, but also a trade facilitator. The primary functions of a depository participant are outlined below:
• Must be registered with SEBI and comply with SEBI norms.
• Convert paper shares into demat accounts.
• Keep a record of trade and other equity investment transactions.
• Ensure investors’ investments are safe and secure.
• Charge appropriate brokerage wherever applicable.
• Make security issues and offers available to its investors.
• Facilitate trades and security transfers seamlessly.
Sheena’s Dad finally realised, how a DP would make his life easier by managing his investment portfolio