A depository is an entity which holds securities of investors in electronic form at the request of the investors through a registered Depository participant. It also provides services related to transactions in securities based on instructions given by the investors to depository participant.

A depository participant is a person or entity, which is registered with depositories such as NSDL and/or CDSL as also with SEBI and who offers services of holding your shares and effecting transfer (accepting credits in your account as well transferring shares from your account to that of some one else based on your instructions). Thus a depository participant acts as a custodian of your securities held in dematerialized or fungible form and carries out your instruction to transfer the same.
Around 99.9% of the securities settlement takes place in dematerialized mode. Therefore, in view of the convenience in settlement through dematerialized mode, it is advisable to have a beneficiary owner (BO) account to trade at the exchanges and to hold the securities.