Strategic Management and Corporate Finance · Role of Intermediaries in Fund Raising

Role of Depositories, Stock Brokers and Advisers

Updated 11 October 2026 · Fact-checked

These are market intermediaries that support fund raising and trading. Depositories (NSDL, CDSL) hold securities in electronic form through depository participants. Stock brokers execute trades on exchanges. Portfolio managers and advisers manage money or advise clients. Each is registered with and regulated by SEBI. Answer by stating role, registration, and duties.

Understand Other Intermediaries: Depositories, Stock Brokers and Advisers

A company raising funds cannot reach investors alone. It needs intermediaries: persons who sit between the issuer and the investor and make issuing, buying, selling and holding securities safe and orderly. SEBI registers and regulates most of them.

Start with holding securities. A depository is an institution that holds securities in electronic (dematerialised) form and allows transfer by book entry. India has two: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited). You do not deal with them directly. You open a demat account with a depository participant (DP), such as a bank, broker or other SEBI-registered entity, which acts as the depository's agent. The legal base is the Depositories Act, 1996 and the SEBI (Depositories and Participants) Regulations, 2018. The investor in a demat account is the beneficial owner, while the depository is the registered owner in the company's records.

Next, trading. A stock broker is a member of a stock exchange who buys and sells securities for clients and is registered with SEBI under the SEBI (Stock Brokers) Regulations, 1992. The broker must follow a code of conduct, keep client money and securities separate from its own, and maintain records. SEBI stopped granting fresh sub-broker registrations from 2018, and existing sub-brokers had to become trading members or authorised persons.

Then advice and management. A portfolio manager manages funds of clients under a contract, either on a discretionary or non-discretionary basis, under the SEBI (Portfolio Managers) Regulations, 2020. An investment adviser gives investment advice for a fee and a research analyst publishes research, each under their own SEBI regulations. Other intermediaries in the same family include merchant bankers, registrars, bankers to an issue, underwriters, debenture trustees and credit rating agencies. ESG rating providers, which rate companies on environmental, social and governance performance, are also regulated by SEBI.

For the exam, think in one frame: who they are, what they do for fund raising or trading, who regulates them, and what duties they carry.

Key rules to remember

Depository structure: Investor (beneficial owner) → Depository Participant → Depository (NSDL / CDSL) → Issuer company; The DP is the investor's gateway. Investors have no direct account with the depository.
Ownership in demat form: Depository = registered owner; Investor = beneficial owner; Under Section 10 of the Depositories Act, the depository is deemed the registered owner only for the limited purpose of effecting transfer of ownership. It has no voting rights or other rights in respect of securities held by it. Those rights belong to the beneficial owner.
Key regulations: Depositories Act, 1996; SEBI (Depositories and Participants) Regulations, 2018; SEBI (Stock Brokers) Regulations, 1992; SEBI (Portfolio Managers) Regulations, 2020; Quote the correct name and the regulator (SEBI) in every answer.
Core duties of an intermediary: Registration with SEBI + Code of conduct + Segregation of client assets + Record keeping + Grievance redressal; Use this as a checklist when the question asks for obligations.
Portfolio management modes: Discretionary vs Non-discretionary vs Advisory; Discretionary: manager decides independently. Non-discretionary: acts on client's directions. Advisory: advises only.

How to solve Other Intermediaries: Depositories, Stock Brokers and Advisers questions

Use this method for any question on depositories, brokers, advisers or other intermediaries. Case questions follow the same path with facts added.

1Identify the intermediary in the question and name it correctly (depository, DP, stock broker, portfolio manager, adviser, rating provider).
2State its role in one or two lines: what it does in fund raising or trading.
3Name the governing law and regulator, such as the Depositories Act, 1996 or the relevant SEBI regulations.
4List the main obligations: registration, code of conduct, segregation of client assets, records, disclosures.
5For case facts, apply the rule to the facts: who is the beneficial owner, who acted, whose duty was breached.
6Conclude clearly: state the legal position or the consequence, such as SEBI action or the investor's remedy.
7If asked to compare (NSDL vs CDSL, broker vs portfolio manager), use two or three points of difference and one common point.

Quickest way: Role-Law-Duty-Conclusion

When to use it: Use when time is short, or for 3 to 5 mark short notes on an intermediary.

Write the one-line meaning of the intermediary.
Write its role in the capital market.
Write the Act or regulation and SEBI registration point.
Write two or three key duties.
Close with one line on why it matters to investors or issuers.

Common mistakes in Other Intermediaries: Depositories, Stock Brokers and Advisers

Saying investors hold their demat account directly with NSDL or CDSL.
Students confuse the depository with the bank-like account provider.
Fix: Write that the account is opened with a depository participant, which is the depository's agent.
Calling the depository the beneficial owner.
The depository appears as holder in the company's records, so the two terms get mixed.
Fix: Remember: depository is the registered owner; the investor is the beneficial owner.
Treating NSDL and CDSL as different in legal basis or function.
Students try to invent differences to fill a comparison answer.
Fix: Both are SEBI-registered depositories under the same Act and regulations. Differences are mainly in promoters, ownership and participant networks; say so cautiously and do not state unverified details.
Confusing a stock broker with a portfolio manager.
Both deal with securities for clients.
Fix: A broker executes trades on an exchange. A portfolio manager manages a client's funds or securities under a contract and a SEBI portfolio manager licence.
Quoting repealed or wrong regulations, such as old depository regulations or old portfolio manager rules.
Older notes and books still circulate.
Fix: Use the current names: SEBI (Depositories and Participants) Regulations, 2018 and SEBI (Portfolio Managers) Regulations, 2020.
Listing roles without a conclusion in case questions.
Students recite theory and skip the analysis step.
Fix: Always end with a clear finding that applies the rule to the given facts.

Worked examples

Example 1

Anita opens a demat account through her bank, which is a SEBI-registered depository participant. She asks who is the beneficial owner of the shares and who is the registered owner. Explain.

Show the solution

Identify the parties: Anita is the investor, the bank is the depository participant, and the depository is NSDL or CDSL, with which the DP is registered.
State the rule: under Section 2(1)(a) of the Depositories Act, 1996, the beneficial owner is the person whose name is recorded as such with a depository.
The depository is the registered owner in the company's records only for the limited purpose of effecting transfer of ownership (Section 10 of the Depositories Act, 1996). It holds no voting or other rights, which belong to Anita as beneficial owner.
Apply: Anita holds the economic and voting rights, so she is the beneficial owner. Her bank acts only as the DP, the agent through which she deals.
Conclude on the question: Anita is the beneficial owner. The depository (NSDL or CDSL) is the registered owner.

Answer: Anita is the beneficial owner. The depository (NSDL or CDSL) is the registered owner, and her bank is the DP acting as agent.

Example 2

Write a short note on how a stock broker and a portfolio manager differ in their role for a client investing in listed shares.

Show the solution

Define a stock broker: a SEBI-registered member of a stock exchange who buys and sells securities for clients, under the SEBI (Stock Brokers) Regulations, 1992.
Define a portfolio manager: a SEBI-registered person who manages or administers a client's funds or securities under a contract, under the SEBI (Portfolio Managers) Regulations, 2020.
Compare function: the broker executes orders on the client's instructions. The portfolio manager takes or recommends investment decisions, depending on whether the service is discretionary or non-discretionary.
Compare remuneration: a broker earns brokerage on trades. A portfolio manager earns a management fee as per the contract.
Common points: both need SEBI registration, follow a code of conduct and must keep client assets segregated.
Conclude: the broker is an executor of trades, the portfolio manager is a manager of the investment.

Answer: A stock broker executes trades on exchanges for brokerage. A portfolio manager manages a client's portfolio under a contract for a fee. Both are SEBI-registered and must follow a code of conduct and segregate client assets.

Exam tips

Link each intermediary to its regulation by name. Marks often go for naming the correct SEBI regulation and Act.
In comparison questions, use a two-column format in bullet lines and give at least three points of difference.
For case questions, state the provision first, analyse the facts, then conclude. Do not write the theory alone.
Prepare a one-line role for every intermediary on the list, since the question may ask for a short note on any one of them.
Do not quote section numbers or figures unless you are sure. A correct role and duty is safer.

Practice questions from Role of Intermediaries in Fund Raising

Other Intermediaries: Depositories, Stock Brokers and Advisers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Other Intermediaries: Depositories, Stock Brokers and Advisers: frequently asked questions

What is the role of a depository participant?

A depository participant is an agent of the depository, registered with SEBI. It opens demat accounts for investors, processes transfers by book entry and provides statements. Investors reach the depository only through a DP.

What is the difference between NSDL and CDSL?

Both are SEBI-registered depositories working under the Depositories Act, 1996 and the same regulations, so their legal function is the same. They differ mainly in ownership and in their networks of participants. For the exam, stress the common role and avoid unverified details.

Which law governs stock brokers in India?

Stock brokers are registered and regulated by SEBI under the SEBI (Stock Brokers) Regulations, 1992, made under the SEBI Act, 1992. They must also follow the rules of their stock exchange.

Which intermediaries support capital raising in India?

Common ones are merchant bankers, registrars to an issue, bankers to an issue, underwriters, debenture trustees, credit rating agencies, depositories and participants, stock brokers and portfolio managers. Most are registered and regulated by SEBI.