Depositories are administrative bodies that help investors handle their financial instruments. Essentially, they function like banks to store bonds, shares, and market acquisitions in a convenient electronic form.
The primary function of a depository is to provide security and liquidity in the market. The National Securities Depository Limited NSDL and CDSL Central Depository Services Limited (CDSL) are registered Indian depositories. They facilitate the holding of securities in dematerialized form. Moreover, they enable the transfer of financial instruments like bonds and stocks investments.
To get all details about NSDL and CDSL, read on.
What is CDSL?
Established in 1999, CDSL is the depository for the Bombay Stock Exchange. Officially regulated by the Securities and Exchange Board of India (SEBI), CDSL holds financial instruments, for example, shares and mutual fund units. They have securities in Demat accounts offered by investment companies to their customers.
What is NSDL?
NSDL is a depository for the National Stock Exchange that holds and helps investors transact mutual fund units electronically. Like CDSL, NSDL also allows the opening of Demat accounts and dematerialization of physical and financial certificates. Additionally, it also provides inter-depository and off-market security transfers.
What are the Services Offered by Depositories?
NSDL and CDSL serve various purposes, all about the investor’s requirements. However, irrespective of the depository investors subscribe to, there are some essential services one can get. They are listed below:
- Demat account access: Depositories allow investors to open a DEMAT account and begin their investment journey. When investors purchase shares or bonds, the financial instruments are credited to their Demat account and are debited when one sells them. Demat accounts are intermediaries between investors and depositories.
- Dematerialization and materialization of securities: Depositories allow converting investors’ physical deposits into electronic form. They also will enable the materialization of electronic securities into their physical condition at the sole discretion of investors.
- Dividend distribution: NSDL and CDSL provide all the necessary information to companies willing to distribute their dividends to shareholders. CDSL/NSDL is a bridge between investors and companies and utilises Demat accounts as transfer instruments.
- Risk elimination: Depositories eliminate risks involved in handling and transferring financial instruments. Before depositories emerged, the inconvenience caused due to handling physical share certificates was huge. Additionally, depositories reduce the cost of running such instruments.
- Liaising with clearing corporations: Depositories allow automatic delivery of securities via clearing agencies. In addition, they are involved in handling confirmations, settlements, and transaction delivery.
- Assisting investors: Depositories help facilitate loans against shares and bonds. Investors can open multiple Demat accounts with either or both depositories. In case of discrepancies, they can also freeze Demat accounts.
What are Depository Participants?
Depository participants act as intermediaries between investors and the depository. SEBI is responsible for overseeing the functioning of depository participants and sets down specific guidelines for participation in the depository base.
Any financial institution like banks and state financial corporations can become participants. Also, non-banking financial companies or transfer agents, clearing corporations, and stockbrokers can participate, provided they have the necessary infrastructure and training to safeguard investors’ financial information.
NSDL vs CDSL: Key Differences
Both NSDL and CDSL are depositories that allow the electronic handling of financial instruments. However, there are some minor differences between the two. They are listed below.
| NSDL | CDSL |
| NSDL stores electronic reproductions of stocks, bonds, ETF units, etc., traded on National Stock Exchange (NSE) and promoted by financial institutions like IDBI and UTI. | CDSL stores electronic copies of financial instruments traded on the Bombay Stock exchange (BSE) and promoted by SBI, HDFC, Bank of India, etc. |
| NSDL had 276 depository participants as of April 30 2022. | CDSL had 588 depository participants as of April 30 2022 |
| Demat accounts begin with IN followed by a 14-digit numeric code. | CDSL Demat account numbers are 16 digit numbers. |
| NSDL came into existence in 1996. | CDSL was established in 1999. |
NSDL and CDSL provide the same services. They function the same way and are both governed by SEBI. Investors cannot choose their depository; it depends on their depository participant. Some participants are registered with both CDSL and NSDL.
Which One is Better, NSDL or CDSL?
Both depositories perform the same functions and both are part of the governance of SEBI. Therefore, there are no material differences between the two apart from their promoters, Demat account format, and year of establishment.
Also, investors cannot choose their depository. Instead, investors are assigned their depository type depending on the financial instruments they are engaged in and the participant company’s affiliation. However, there are minor differences between the charges levied on the participatory organisation by NSDL and CDSL.
Final Word
Depositories like NSDL and CDSL work under the guidelines set by SEBI. Both offer the same services, and every depository participant is subscribed to either. Therefore, factors such as investment decisions, portfolio performance, and return expectations are not dependent on the depository.
Frequently Asked Questions
-
What are the depository charges for holding an Indian Demat account?
Depository participants charge a small fee every time investors make a transaction. Usually, the DP charge is 0.04% of the transaction value or Rs. 25, whichever is higher.
-
Are shares purchased by investors stored in a depository or Demat accounts?
Shares and all other financial instruments are stored in Demat accounts. Investors need to fill a Depository Instruction Slip, after which they can transfer shares at will.
-
Who has more investor accounts, CDSL or NSDL?
As of April 30 2022, NSDL had 2,70,78,156 investor accounts, which is more than CDSL.
-
Can I transfer shares from NSDL to CDSL?
Yes, it is possible to transfer shares from NSDL to CDSL.
-
Is CDSL a government-owned company?
No, CDSL is not a government-owned company.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch/hear on YouTube:
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.
