Custodian of Securities” is the entity which has been granted a certificate of registration by the PFRDA for the safekeeping of securities or assets held under the NPS or APY. Custodian is responsible for carrying out settlements, recording receipts, keeping and maintaining records, and managing custody accounts of the schemes on behalf of the NPS Trust. Presently, the Deutsche Bank AG is the Custodian under the NPS.
What Is a Custodian Bank?
A custodian bank is a financial institution that holds customers’ securities for safekeeping to prevent them from being stolen or lost. The custodian may hold stocks, bonds, or other assets in electronic or physical form on behalf of its customers.
Often, a custodian bank does more than provide asset protection. It can manage customers’ accounts and transactions, manage the settlement of financial transactions, account for the status of assets, and ensure compliance with tax regulations.
How a Custodian Bank Works
Since they are responsible for the safety of assets and securities worth hundreds of millions or even billions of dollars, custodians tend to be large and reputable firms, such as banks. Investment advisory firms routinely use custodian banks to safeguard the assets they manage for their clients.
A custodian also may be appointed to maintain control of the assets of a minor child or an incapacitated adult and manage them on their behalf.
Other Services Provided
Most custodians offer related services such as account administration, transaction settlements, the collection and distribution of dividends and interest payments, tax support, and foreign exchange management.A custodian bank may handle investment activities for customers. This could involve placing orders with a brokerage to buy or sell securities, transferring funds to and from accounts, overseeing investment account activities, and reporting account activity to customers.
Custodians may also prepare the necessary tax filings related to investment activities for customers.
The fees for their services depend on exactly what they provide and can be based on the value of assets held.
Functions and Responsibilities of a Custodian
The Custodian under NPS is designed to perform the following functions:
- The securities under the schemes are held in dematerialized form by the Custodian in the name of the NPS Trust.
- Acts as a Domestic Depository participant and undertakes activities as prescribed in the Depositories Act, 1996 or as defined by the Securities and Exchange Board of India (SEBI).
- Acts as a Custodian to pension funds managing various schemes on behalf of the NPS Trust.
- Collects the benefits or rights such as dividends or income that have accrued on the securities.
- Keeps the pension funds posted about various corporate actions.
- Keeps records and reconciles the records of the securities.
FAQs
What Purpose Does a Custodian Financial Institution Serve?
A custodian financial institution keeps the securities owned by individuals and organizations safe. This serves an important purpose since financial securities must be cleared and settled properly, with various regulatory and accounting procedures met. These are often far too complex or time consuming for investors or traders.
What Other Services Do Custodian Banks Offer?
Custodians today do more than maintain the security of assets. They also provide accounting and settlement services, such as managing dividends or interest that has been distributed to the account or managing stock splits. The custodian bank performs such actions in the client’s name, and the SEC ensures that custodians will notify customers when certain activities are conducted on their behalf in addition to sending regular account statements.
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