Demat Account: What is a depository and what is its role?

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demat account has become easier, thanks to the widespread availability of mobile trading applications. Opening a demat account through a depository participant (DP) is a straightforward procedure, similar to opening a bank account. However, it's important to note that a DP can't provide a demat account unless they are registered with depositories, an organisation responsible for securely holding investors' securities.

In this article, we'll delve into the role of a depository in a demat account, explore the number of depositories in India, and address questions such as whether a demat account can be opened directly with a depository. A depository is an organisation that holds securities (like shares, debentures, bonds, government securities, mutual fund units, etc.) of investors in electronic form at the request of the investors through a registered depository participant. It also provides services related to transactions in securities.

Let's say an investor buys some stock in a company through their brokerage account. After the purchase, these stocks need a place to be securely stored in electronic form. This is where the depository comes in.

Also Read: Demat accounts: Everything you should know about the annual maintenance charges on them When the investor buys the stocks, they are electronically transferred to their demat account, which is provided by their DP. The depository, acting as a central securities repository, securely holds these stocks on behalf of the investor. Now, when the investor decides to sell their stocks, they instruct their DP to initiate the sale.