Central Depositories and Bank Accounts (Financials Series Part - 4)
Background
We come across the terms “Central Depository Services Ltd.” (CDSL) and “National Depository Services Ltd.” (NDSL) when reading about Stock market. These are private organizations but seem to be the only entities in India that seem to be centralized entities serving no matter which broker you do business with. What is a depository?
What is a depository?
- The purpose of a “depository” is to maintain deposits. In the cases of CDSL and NDSL, they hold deposits of records that you are the owner of a certain stock (or any other security)
- The definition says “maintain deposits”. Is a bank too a depository?
- Yes, a “bank” is a “depository” too. See here
Types of Accounts in Depositories (Banks)
- A time deposit is an interest-bearing account and has a specific date of maturity such as a Fixed Deposit (FD) a.k.a Certificate of Deposit (CD)
- A demand deposit account holds funds until they need to be withdrawn such as a checking or savings account
Why does it sound like Repository?
- A depository is a place to put things which are owned by different people
- It holds concrete items such as securities owned by an individual/organization etc.
- A repository is a storage in general. The concept of ownership is not direct to establish
- It holds abstract items such as knowledge
Additional Reading
- Investopedia page on Depository