What is a Depository Participant? Everything You Need to Know

Due to advancements in technology, investing in the stock market has become entirely digital. At the core of this modern system are depositories and their intermediaries, known as Depository Participants (DPs).

If you are an investor or considering opening a Demat account, understanding what a DP is and how it functions is crucial. This guide explores DP’s role, the services it offers, associated charges, and its importance within the Indian securities ecosystem.

A Depository Participant is an agent or intermediary registered with one or both central depositories (NSDL/CDSL) to offer Demat account services to investors. Think of the DP as the ‘gateway’ between you and the central depository.

DPs may be banks, brokers, financial institutions, or other entities authorised by the Securities and Exchange Board of India (SEBI). When you open a Demat account, you do so through a DP, which maintains your account and provides a range of services.

A depository is a centralised entity that holds securities such as stocks, bonds, mutual funds, and other financial instruments in electronic form on your behalf. This eliminates the need for physical share certificates, reducing risks like loss, theft, or forgery.

In India, there are two main central securities depositories:

• National Securities Depository Limited (NSDL)

• Central Depository Services Limited (CDSL)

Both NSDL and CDSL maintain electronic records of securities ownership and facilitate seamless trading, settlement, and transfer of these securities.

While depositories serve as the digital vault for your securities, DPs orchestrate the day-to-day operations. The interaction between you, DP, and the central depository works as follows:

1. Account Opening: You can open a Demat account through a Depository Participant by completing KYC formalities and documentation.

2. Dematerialisation: Submit physical share certificates to the DP to convert them into electronic form. The DP coordinates with the depository and registrar to update your holdings.

3. Transaction Processing: When buying or selling securities, the DP acts as the custodian, ensuring that securities move electronically into the Demat account

4. Maintenance and Records: The DP provides periodic holding statements and transaction reports

5. Corporate Actions: The DP manages entitlements from companies and facilitates investor participation in corporate decisions

DPs ensure your holdings are secure and transactions compliant with regulatory requirements.

DP charges are fees levied upon debit of securities from your Demat account. These charges are distinct from brokerage fees and other statutory taxes like Securities Transaction Tax (STT) or GST. They typically consist of a fixed depository fee and an additional charge set by the specific DP. These may include:

All charges are subject to Goods and Services Tax (GST) as per government regulations.

Apart from facilitating transactions, DPs play a vital part in upholding regulatory standards and preventing fraud. DPs are responsible for ensuring investor protection through:

• Maintaining up-to-date KYC and investor details in compliance with SEBI guidelines.
  

• Providing transparent records of holdings and transactions.
  

• Offering grievance redressal mechanisms for investor complaints.
  

• Facilitating electronic voting (e-voting) and participation in shareholder meetings.
  

• Implementing robust data security measures to protect investor information.

While both Depository Participants (DPs) and stockbrokers are crucial for you as an investor, they serve distinct functions. Check out how they distinguish from each other below:

While both depositories and depository participants (DPs) are integral to the dematerialised trading system, they operate at different levels. Check out their distinctions below:

Depository Participants form the critical link between investors and the central securities depositories, enabling efficient electronic holding and transfer of securities. They offer a range of essential services that support modern trading, regulatory compliance, and investor protection in India’s capital markets. Understanding their role helps investors manage their portfolios with greater confidence and clarity.

This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.