The question is relevant not only to the case of Zerodha, but also to each and every brokerage company in the Indian Stock Market.
To discuss the matter we have to start from beginning:
One can have a Demat account either with NSDL or CDSL, the only two Depositories in India who extends various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. They also offer basic facilities like account maintenance, dematerialisation, rematerialisation, settlement of trades through market transfers, off market transfers & inter-depository transfers (CDSL to NSDL and vice-versa), distribution of non-cash corporate actions and nomination/ transmission. They extend demat services through agents who are called Depository Participants (DP).
To discuss the matter we have to start from beginning:
One can have a Demat account either with NSDL or CDSL, the only two Depositories in India who extends various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. They also offer basic facilities like account maintenance, dematerialisation, rematerialisation, settlement of trades through market transfers, off market transfers & inter-depository transfers (CDSL to NSDL and vice-versa), distribution of non-cash corporate actions and nomination/ transmission. They extend demat services through agents who are called Depository Participants (DP).
The DP acts as the link between the investor and CDSL/NSDL. The DP processes the instructions of the investor, the accounts and records thereof is maintained with CDSL/NSDL. A DP is thus a "Point of Service" for the investor.
Zerodha acts as a DP and provides CDSL accounts (earlier they opened NSDL accounts when their Demat partner was ILFS).
Thus, once you have got your securities reflected on your Demat Account, they are held by either of the two Depositories, CDSL and NSDL, not by the Zerodha. The same thing is applied to all the Depository Participants because all of them (broking houses) are registered under either CDSL or NSDL.
Investors' Protection Fund (IPF): As per the SEBI guidelines, every exchange has to create and maintain Investors Protection Fund as a safety measure to ensure the compensation to the clients of a trading member/broking firm if the firm is declared defaulter or expelled by the exchange concerned. The fund is raised with contribution of the trading members/broking firms under the exchange. Total fund might have crossed Rs 1,000 crores and this is meant to be used to protect those genuine claims of the investors if a broking house (DP) shuts down their business or expelled by the exchange concerned.
For further details please visit
- http://www.sebi.gov.in/cms/sebi_data/commondocs/ch16_p.pdf
- Modification to Investor Protection Fund (IPF) / Customer Protection Fund (CPF) Guidelines
- National Stock Exchange of India Limited
- NSDL
- What is "Investor Protection Fund" of BSE and NSE? - BasuNivesh
- Central Depository Services (India) Limited
So, the the clients are to get compensated.
One more thing comes out of the common sense that it is hardly possible that a broking house will shut down without notice. In that case there is always chance of opening another Demat account with other reliable firm and transfer your holdings there in time.
So, from an investor’s point of view, there is no harm if Zerodha or any broking house closes their business. Your shares will remain intact. You can transfer them to some other DP as per your choice.
So, don't worry and go for Zerodha: Open an online trading and demat account with Zerodha and enjoy the lowest brokerage