Depository and Custodial Services in India

24/11/2023 1 By indiafreenotes

Depository Services in India:

Depository services in India are facilitated by depository institutions that operate as intermediaries between the investors and the securities market. The two main depositories in India are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). They enable the holding, transfer, and settlement of financial securities in electronic form.


  1. Dematerialization (Demat):

Depository services involve converting physical securities into electronic form, eliminating the need for paper certificates. Investors hold securities in demat accounts.

  1. Electronic Transfer:

Securities can be electronically transferred between demat accounts, facilitating seamless and efficient transactions in the stock market.

  1. Settlement:

Depositories play a crucial role in the settlement of trades. They ensure the transfer of securities and funds between the buyer and seller accounts on the agreed settlement date.

  1. Demat Account:

Investors open demat accounts with depository participants (DPs), which can be banks, financial institutions, or brokers. These accounts serve as the electronic repository for securities.

  1. Initial Public Offerings (IPOs):

Depositories credit shares to investors’ demat accounts during IPOs, simplifying the subscription and allocation process.

  1. Corporate Actions:

Depositories manage corporate actions such as bonus issues, dividends, and stock splits, ensuring that the benefits reach the rightful owners.

  1. Intermediaries:

Depository participants act as intermediaries between the depository and investors. They offer services related to demat accounts and facilitate transactions.

  1. NSDL and CDSL:

NSDL and CDSL are the central depositories in India, providing the technology infrastructure and regulatory framework for depository services.

Custodial Services in India:

Custodial services in India involve the safekeeping and administration of various financial assets on behalf of institutional clients, including banks, financial institutions, asset managers, and corporates. Custodians ensure the secure custody, settlement, and management of a wide range of assets.


  1. Safekeeping:

Custodians physically and/or electronically safeguard assets such as securities, commodities, and other financial instruments.

  1. Settlement:

Custodians facilitate settlement processes for various asset classes, ensuring the timely and accurate transfer of assets and funds.

  1. Asset Servicing:

Custodians provide comprehensive asset servicing, including income collection, corporate actions, and proxy voting services.

  1. Reporting:

Custodians offer detailed reporting to clients, covering portfolio holdings, transactions, and compliance with regulatory requirements.

  1. Diverse Asset Classes:

Unlike depository services, custodial services extend beyond securities to cover a broader spectrum of assets, including mutual funds, alternative investments, and non-financial assets.

  1. Global Custodians:

Some entities in India operate as global custodians, providing services for international portfolios and managing cross-border investments.

  1. Technology Integration:

Custodians leverage technology for efficient reporting, reconciliation, and risk management, ensuring transparency and accuracy in asset administration.

  1. Regulation:

Custodial services are subject to regulatory oversight, and entities offering such services must comply with regulatory requirements set by bodies like the Securities and Exchange Board of India (SEBI).

Differences between Depository Services and Custodial Services

Basis of Comparison Depository Services Custodial Services
Definition Facilitates the holding and transfer of financial securities in electronic form. Involves the safekeeping and administration of a wide range of financial assets on behalf of clients.
Nature of Assets Primarily deals with securities such as stocks, bonds, and mutual fund units. Covers a broader spectrum, including securities, commodities, and other financial instruments.
Key Function Holding and maintaining securities in dematerialized form. Safekeeping, settlement, and administration of various financial assets.
Regulation Regulated by depository participants and securities regulators like SEBI in India. Regulated by financial regulatory authorities and may vary based on the type of assets involved.
Account Types Demat accounts for holding securities electronically. Multiple account types for different asset classes, including securities, commodities, and more.
Settlement Mechanism Facilitates electronic transfer and settlement of securities. Settlement mechanisms may vary based on the type of assets (e.g., T+2 for stocks).
Ownership Confirmation Provides electronic statements as evidence of ownership. Offers statements and reports to clients, confirming the ownership of various assets.
Scope of Services Focused on securities-related services like stock and bond holdings. Encompasses a broader range, including securities, commodities, and non-financial assets.
Role in IPOs Facilitates the electronic credit of shares to the demat accounts of investors during Initial Public Offerings (IPOs). May participate in IPOs by providing custodial services for various assets.
Risk Management Primarily manages risks related to securities transactions. Manages risks associated with various asset classes, including market, credit, and operational risks.
Client Base Mainly retail and institutional investors participating in the securities market. Diverse client base, including financial institutions, asset managers, corporations, and high-net-worth individuals.
Technology Integration Highly dependent on technology for electronic storage and transfer of securities. Leverages technology for efficient reporting, reconciliation, and management of diverse asset portfolios.
International Operations Can be part of an international depository network (e.g., Euroclear, Clearstream). Often involved in cross-border operations, especially for global custodians.
Reporting Provides regular statements and updates on securities holdings. Offers comprehensive reporting on various asset classes, investment performance, and compliance.
Proxy Voting May provide proxy voting services for securities held in demat accounts. Offers proxy voting services for various assets in the custodial portfolio.