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What Is Depository System And Its Functions2

A depository in the stock market is an apex organization or unit in the depository system. A depositoryu2019s meaning in the stock market is similar to a bank where depositors or investors can deposit or withdraw money or securities. In the same manner, an investor can deposit and withdraw his shares in a depository. If you want to know deeply that What is Depository, read our blog.

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What Is Depository System And Its Functions2

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  1. What Is Depository System And Its Functions What is Depository? In India, a depository is an organization that holds and maintains securities (such as stocks, bonds, and debentures) in electronic form. The depository system was introduced in India in 1996 to replace the physical securities trading system. There are two main depositories in India - National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). These depositories act as intermediaries between the investors, the stock exchanges, and the companies whose securities are traded.

  2. Functions Of Depository Some of the key functions of depository are: Securities Depository: Depositories are primarily responsible for holding securities in dematerialized form. They maintain electronic records of the securities holdings of investors.  Safekeeping: Depositories provide a safe and secure environment for the storage of securities. They ensure that the securities are not lost or stolen and are protected from damage. It is one of the key functions of depository.  Settlement: Depositories facilitate the settlement of trades by transferring securities from the seller's account to the buyer's account. This helps to reduce settlement risk and the time required for settlement.  Transfer of Ownership: Depositories enable the transfer of ownership of securities without the need for physical movement of securities. This helps to reduce the time and cost of transferring securities.  Corporate Actions: Depositories provide information and facilitate the processing of corporate actions such as dividend payments, stock splits, and bonus issues.  Pledge and Hypothecation: Depositories provide a platform for investors to pledge their securities as collateral for loans. This helps investors to obtain financing at lower rates and with better terms.  Proxy Voting: Depositories provide a platform for investors to exercise their voting rights in companies where they hold securities. This helps to promote shareholder democracy and accountability.  Information Services: Depositories provide various information services such as statements of holdings, transaction statements, and tax statements to investors. This helps investors to keep track of their securities holdings and transactions. 

  3. In India, there are mainly two Depositories which are Central Depository Services Limited(CDSL) and National Securities Depository Limited(NSDL). National Securities Depository Limited National Securities Depository Limited (NSDL) is a securities depository in India. It was established in 1996 and is headquartered in Mumbai. NSDL provides electronic depository services, which allow investors to hold securities such as shares, bonds, debentures, and mutual funds in electronic form. NSDL operates as a central securities depository, holding securities in dematerialized form, and providing various services related to electronic settlement of trades, corporate actions, and other services related to securities transactions. NSDL has played a key role in the modernization of India's securities markets by facilitating the shift from physical securities to electronic securities. NSDL is regulated by the Securities and Exchange Board of India (SEBI) and is a joint venture between the National Stock Exchange of India and several leading Indian banks. NSDL's services are widely used by investors, brokers, and other participants in India's securities markets.

  4. Central Depository Services Limited CDSL, or Central Depository Services Limited, is a securities depository in India that was established in 1999. Similar to NSDL, CDSL provides electronic depository services that allow investors to hold securities in electronic form. CDSL is a subsidiary of the Bombay Stock Exchange and is regulated by the Securities and Exchange Board of India (SEBI). CDSL operates as a central securities depository, holding securities in dematerialized form, and providing various services related to electronic settlement of trades, corporate actions, and other services related to securities transactions. CDSL has a wide network of depository participants (DPs) that provide depository services to investors. CDSL and NSDL are the two main securities depositories in India, and together they have played a key role in the modernization of India's securities markets by facilitating the shift from physical securities to electronic securities. Both depositories have helped to improve the efficiency and transparency of securities transactions in India, making it easier for investors to participate in the markets.

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