DP agreement

A Category III AIF holds shares, and shares are held in electronic form. To do that, the fund needs an account with a depository participant.

The DP agreement is the contract that opens and governs that account. The fund is the beneficial owner; the DP acts as the depository's agent on the fund's behalf.

The workbook treats it as one of the fund's constitution documents, alongside the trust deed, the investment management agreement, the custodian agreement and the distribution agreement. It gets a short section of its own because it defines the relationship that makes depository services work smoothly.

What it does is unglamorous and exact. It says who may instruct whom, what statements the fund receives and how often, and what the DP may charge.

Where it sits. Chapter 9, section 9.7.5 (Agreement with Depository Participant). The workbook describes it as an agreement between the DP and the Beneficial Owner (Category III AIF) — a contract that outlines the rights, duties and responsibilities of both sides when using depository services, and that ensures the DP acts on the AIF's behalf in providing services such as dematerialisation.

The key aspects the workbook lists:

The only figure in the passage is a frequency. Statements come at least monthly. The workbook gives no minimum balance, no fee cap, no penalty rate and no turnaround time for a dematerialisation request in this section — so do not supply one from another paper.

Why the standing instruction line matters. A fund that trades daily cannot authorise every credit by hand. The standing instruction moves that consent to the agreement, and the agreement then makes compliance an obligation rather than a courtesy. That is why the clause is called out.

Where the same fund's securities are also promised elsewhere. Appointing a custodian is mandatory for all AIFs, and the custodian holds the securities for safekeeping. The DP agreement is about the depository account and its operation; the custodian agreement is about safekeeping, clearing, settlement, records and reporting. A Category III AIF signs both, and each scheme may have a different custodian in order to segregate that scheme's assets and liabilities.

The fund, the DP and the amounts are illustrative; the obligations and the monthly statement requirement are the workbook's.

Meridian Absolute Return Fund — Scheme I opens a beneficial owner account with Ganges Depository Services Ltd as its DP and signs the DP agreement. The scheme has a corpus of Rs 500 crore and turns over roughly Rs 90 crore of listed equity a month.

What the agreement then does in an ordinary month:

Where it bites. In month seven the DP's statement shows 1,20,000 shares credited but the administrator's books show 1,00,000. Because the statement obligation is contractual and monthly, the gap surfaces within weeks rather than at the annual audit. Reconciled early, a Rs 80 lakh discrepancy is a clerical break. Found at year end, it is a valuation error that has already flowed through every Series NAV the fund published in between.

Chapter 9, section 9.7.5, is the last of the fund's documentation sections — after the trust deed, the investment management agreement, the custodian agreement, the distribution agreement and the investment advisory agreement. Chapter 9 examines that list as a set, so the reliable question is which document governs which relationship.

Expect: who the two parties are (DP and the AIF as beneficial owner), that the DP acts as agent of the depository, that the AIF may give standing instructions which the DP must follow, and the at least monthly transaction statement. A harder question asks you to separate the DP agreement from the custodian agreement, which is mandatory for all AIFs and covers safekeeping, clearing, records and reporting.

• The AIF is the beneficial owner, not the DP. The DP is the depository's agent acting on the AIF's behalf.
• Statements are at least monthly. The workbook says typically at least monthly — not quarterly, and not on request.
• Standing instructions bind the DP. Once given, the DP is obligated to follow them; this is not a discretion.
• The DP agreement is not the custodian agreement. Appointing a custodian is mandatory for all AIFs and covers safekeeping, clearing membership, records, tax and regulatory compliance. The DP agreement covers the depository account.
• The workbook gives no fee figures here. It says the agreement outlines the fees and the revision process. Any rupee amount you have seen for DP charges came from a depository paper, not this one.
• A tripartite agreement is a different document. That page, written from a depository operations paper, is signed by the depository, the issuer and the issuer's R&T Agent to make a scrip eligible for demat. It is not the account-opening contract between a DP and an investor.