Central Depository is a financial institution that holds and maintains securities in electronic form, enabling investors to trade, transfer, and settle securities efficiently and securely. It eliminates the need for physical certificates, reduces the risk of loss or forgery, and streamlines the settlement process in stock markets. Understanding the role of a central depository is essential for investors, brokers, and financial institutions to ensure smooth market operations.

The primary functions of a central depository include dematerialization of physical securities, safekeeping of electronic securities, facilitating electronic transfer and settlement, and maintaining ownership records. Investors can hold shares, bonds, and other securities in a demat account linked to the depository, which acts as a central registry and reduces paperwork.

In India, the two major central depositories are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). Both operate under the regulatory oversight of the Securities and Exchange Board of India (SEBI) and are integral to the functioning of the Indian capital markets. They provide services such as pledge creation, corporate action processing, and facilitating smooth settlements on exchanges like NSE and BSE.

Central depositories also play a crucial role in corporate governance and investor protection. By ensuring accurate and updated ownership records, they simplify processes like dividend payments, bonus issues, rights issues, and buybacks. This transparency builds trust among investors and contributes to the efficiency of financial markets.

In summary, a central depository is a pivotal institution that holds securities electronically, enabling secure trading, efficient settlement, and transparent record-keeping. Understanding its functions, services, and regulatory framework helps investors, brokers, and companies participate confidently and safely in SEBI-regulated Indian markets.