Depository refers to a financial institution that holds securities such as shares, bonds, and debentures in electronic form on behalf of investors. It acts as a custodian and facilitates the seamless transfer, settlement, and maintenance of ownership records for these securities. In India, the two main depositories registered with the Securities and Exchange Board of India (SEBI) are National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

The primary function of a depository is to enable investors to hold and transact in securities electronically through a Demat account. This system eliminates the need for physical share certificates, reducing risks such as theft, forgery, and loss of documents. By doing so, it enhances efficiency, transparency, and safety in the securities market.

Investors interact with a depository through intermediaries known as Depository Participants (DPs), which can be banks, brokers, or financial institutions authorized by SEBI. The DP serves as a link between the investor and the depository, helping investors open Demat accounts, transfer securities, and update account details. When an investor buys or sells shares, the depository ensures that the securities are credited or debited to the respective Demat accounts after settlement.

In addition to holding securities, depositories perform several key functions, such as dematerialization (conversion of physical certificates into electronic form), rematerialization (conversion of electronic holdings back into physical form), pledging of securities for loans, and corporate action processing like bonus issues and dividends.

Overall, the depository system has revolutionized Indiaís capital markets by promoting ease of trading, faster settlement, and enhanced investor protection. It forms the backbone of the modern electronic trading infrastructure, ensuring that ownership records are accurate, secure, and easily accessible to investors and regulators alike.