NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

Depositories and Depository Participants for NISM Series VII

Updated 11 October 2026 · Fact-checked

A depository holds securities in electronic form and records transfers of ownership. India has two: NSDL and CDSL. A depository participant (DP) is the agent of a depository. It opens demat accounts and provides services to investors. You deal with the DP, not the depository, and the exam tests this split.

Understand Depositories and Depository Participants

Before depositories, shares were held as paper certificates. Paper caused theft, forgery, delays and bad delivery. Depositories solved this by holding securities as electronic records. This is called dematerialisation, or demat.

A depository is an institution registered with SEBI that holds investors' securities in electronic form and enables transfer by book entry. Think of it as a bank for securities. India has two depositories: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited). Both work under the Depositories Act, 1996 and SEBI regulations. Both offer the same core services. NSDL was the first depository in India.

An investor cannot deal with a depository directly. The investor deals with a depository participant (DP). A DP is an agent of the depository and acts as the link between the depository and the investor. Banks, stockbrokers, financial institutions and custodians can act as DPs once registered with SEBI and admitted by a depository. The DP opens your demat account, accepts securities for dematerialisation, processes transfers on your instruction and gives you statements.

A demat account works like this. You open an account with a DP and sign an agreement. You get a unique client ID. After a trade, your securities are credited to or debited from this account by electronic entry. Your name stays as the beneficial owner. The depository's name appears in the company's register as the registered owner, but the beneficial owner enjoys the rights and benefits of the securities. A transfer between the accounts of the same depository is done by book entry, and no paper moves.

The depository is a registered owner only in name. It does not trade, give advice or take investment decisions for you. Remember the layers: issuer and its registrar and transfer agent (RTA), depository, DP, investor. Exam questions often ask who does what.

Key formulas to remember

Ownership split: Registered owner = depository; Beneficial owner = investor; The depository holds legal title in the issuer's records. The investor keeps all rights, such as dividends, bonus and voting.
Chain of service: Investor → DP → Depository → Issuer / RTA; The investor has no direct account with the depository. The DP is the agent.
Depositories in India: NSDL and CDSL; Both are SEBI-registered and work under the Depositories Act, 1996. Their core functions are the same.
Dematerialisation and rematerialisation: Demat = paper to electronic; Remat = electronic to paper; Do not reverse the two terms in options.
Transfer mode: Transfer within a depository = book entry; No physical delivery and no transfer deed is needed for the transfer.

How to solve Depositories and Depository Participants questions

Most questions on this topic test who does what. Use this routine to find the right answer.

1Identify the party in the question: depository, DP, investor, issuer, RTA or clearing corporation.
2Decide whether the action is holding and transferring securities (depository) or dealing with the investor (DP).
3Check whether the question uses legal ownership (registered owner) or rights and benefits (beneficial owner).
4Spot the direction of the process: demat is paper to electronic, remat is the reverse.
5Cross out options that say the investor deals directly with the depository or that the depository gives investment advice.
6Look for absolute words such as always, only and never. They are usually traps.
7Choose the option that matches the basic structure: investor, DP, depository.

Quickest way: Role-matching shortcut

When to use it: Use it for definition and who-does-what questions when you have under a minute.

Ask: does the action touch the investor's account? If yes, think DP.
Ask: does it concern the record of holdings or transfer by book entry? If yes, think depository.
Remember: depository = registered owner; investor = beneficial owner.
Eliminate any option with NSDL and CDSL having completely different core functions.
Pick the remaining option and move on.

Common mistakes in Depositories and Depository Participants

Saying the investor opens an account directly with NSDL or CDSL.
Students link the demat account to the depository's name.
Fix: Remember the account is opened with a DP. The depository only admits and supervises DPs.
Treating the depository as the beneficial owner of the securities.
The depository's name appears in the issuer's register.
Fix: The depository is the registered owner. The investor is the beneficial owner and receives dividends, bonus and other benefits.
Believing NSDL and CDSL do very different things.
Students look for a difference because exams ask for one.
Fix: Both provide the same core services. Differences lie in ownership, history and DP network, not in basic function. NSDL was the first.
Mixing up dematerialisation and rematerialisation.
The two words look alike.
Fix: Demat means paper to electronic form. Remat means electronic back to paper.
Thinking a DP is always a bank.
Many people open demat accounts at banks.
Fix: DPs can be banks, brokers, financial institutions and custodians. They must be registered with SEBI and admitted by a depository.

Worked examples

Example 1

Who is the registered owner and who is the beneficial owner of shares held in a demat account? Options: (a) Investor is both (b) Depository is registered owner, investor is beneficial owner (c) DP is registered owner, depository is beneficial owner (d) Issuer is registered owner, DP is beneficial owner

Show the solution

Recall that securities held in a depository are registered in the depository's name in the issuer's records.
So the depository is the registered owner.
The investor keeps the rights and benefits of the securities, so the investor is the beneficial owner.
Option (a) is wrong because the investor is not the registered owner. Options (c) and (d) wrongly give these roles to the DP or issuer.

Answer: (b) Depository is registered owner, investor is beneficial owner.

Example 2

Ravi wants to hold shares in demat form. Which statement describes the correct process? Options: (a) He opens an account with NSDL directly and NSDL buys the shares (b) He opens an account with a SEBI-registered DP, which links him to a depository and processes his instructions (c) He asks the issuer to open an account with CDSL (d) He opens an account with the clearing corporation

Show the solution

A depository cannot deal with investors directly. Option (a) fails, and it also wrongly says the depository buys shares.
The DP is the agent that opens the account, so the chain is investor, DP, depository.
The issuer does not open demat accounts for investors, so (c) fails.
A clearing corporation handles trade settlement, not investor demat accounts, so (d) fails.
Option (b) matches the structure.

Answer: (b) He opens an account with a SEBI-registered DP, which links him to a depository and processes his instructions.

Exam tips

Learn the chain investor, DP, depository, issuer or RTA. Many questions are variations of it.
Read the question for registered owner versus beneficial owner. Examiners swap them as a trap.
On NSDL versus CDSL questions, expect similar functions. Be wary of options claiming one does something the other cannot.
Under 25% negative marking in Series VII, skip an option you cannot narrow down to two rather than guess blindly.
Revise the definitions of demat and remat together, in one line each.

Practice questions from Market Participants in the Securities Market

Depositories and Depository Participants in other exams

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

Depositories and Depository Participants: frequently asked questions

What is the role of a depository in India?

A depository holds securities in electronic form and records their transfer by book entry. It keeps the investor's holdings safe and removes the risks of paper certificates. India has two depositories, NSDL and CDSL.

What is the difference between NSDL and CDSL?

Both are SEBI-registered depositories and offer the same core services. They are separate companies with their own networks of DPs. NSDL was the first depository in India.

What does a depository participant do?

A DP is the agent of a depository. It opens demat accounts, accepts securities for dematerialisation, executes transfer instructions and issues account statements. It is the investor's point of contact.

How does a demat account work in India?

You open the account with a DP and receive a client ID. Securities bought are credited to your account electronically and securities sold are debited. You remain the beneficial owner while the depository is the registered owner.