Practically every investor has come across the terms ‘NSDL’ and CDSL.’ These terms are commonly heard when one opens their Demat accounts. It’s important to understand what these terms signify and the difference between NSDL and CDSL. ‘CDSL’ is short for ‘Central Depository Securities Limited’ while ‘NSDL’ is short for ‘National Securities Depository Limited.’ Both CDSL and NSDL are depositories registered by the Indian government to hold multiple forms of securities like stocks, bonds, ETFs, and more as electronic copies.
How Do Depositories Work?
Depositories play a crucial role in the smooth functioning of the stock market by holding securities electronically. When investors buy shares, they are credited to their Demat account, and when they sell, the shares are debited. However, the actual securities are maintained by depositories like CDSL and NSDL, ensuring safe storage and smooth transactions.
Depositories also facilitate trade settlements, share transfers, dematerialisation, and rematerialisation. Depository participants (DPs), such as brokers, act as intermediaries, offering investors a platform to trade securities. Once an investor places a buy or sell order, the depository ensures that ownership is transferred securely within T+2 days.
By digitising the stock market, depositories have enhanced security, eliminated the risk of physical certificates, and made trading seamless. Investors can now access their holdings anytime and trade from anywhere. This system not only simplifies investing but also adds efficiency and transparency to the financial markets.
What Is NSDL?
The National Securities Depository Limited (NSDL) is India’s leading securities depository, established in 1996 to facilitate electronic trading and safekeeping of assets. It enables dematerialisation, converting physical securities into electronic form, and rematerialisation, converting them back to physical certificates.
NSDL plays a crucial role in the Indian securities market by providing services to investors, issuers, and intermediaries. It also manages corporate actions such as dividends, bonuses, and securities pledging. Additionally, NSDL ensures secure electronic settlements of trades, making transactions seamless and efficient. Regulated by the Securities and Exchange Board of India (SEBI), NSDL operates from its headquarters in Mumbai, contributing to the modernisation and transparency of the Indian financial system.
What is CDSL?
Central Depository Services Limited (CDSL) is a leading securities depository in India, established in 1999 to provide secure and efficient depository services. It facilitates dematerialisation, converting physical securities into electronic format, and rematerialisation, restoring them to physical form when needed.
CDSL plays a key role in streamlining securities transactions for investors, issuers, and market intermediaries. By offering seamless electronic settlements, it enhances the efficiency and transparency of the Indian financial system. Regulated by the Securities and Exchange Board of India (SEBI), CDSL ensures compliance with market regulations while safeguarding investor interests.
As one of India’s two central depositories, it contributes significantly to the modernisation of securities trading and management.
Function of NSDL and CDSL
Both CDSL and NSDL function as depositories. This means they are administrative bodies holding securities, financial instruments, and stocks of investment in a dematerialised or electronic form. Through the means of their DP or depository participant, an investor can place a request to either depository. In general, both CDSL and NSDL work like banks for investors. They hold for assets like bonds, shares, financial instruments, and more, rather than money. This allows for ownership of these stocks, bonds and other debentures to be seen in a convenient electronic form.
Financial instruments being handled in their physical form posed many risks. Both NSDL and CDSL provide investors with electronic systems of storing their market acquisitions, akin to a bank for storing money. This has helped to eliminate most of the risks and inconveniences involved in the handling of and transfer of physical share certificates of the past. Furthermore, depository services like that of CDSL and NSDL have helped to reduce the costliness of transactions as well as the processing time for such transactions. Trading becoming electronic has helped create a boom in the world of investing.
Difference between NSDL and CDSL
Although they are vastly similar, here are some points of difference between NSDL and CDSL.
– The biggest difference between NSDL and CDSL is that National Securities Depository Limited works to keep electronic copies of stocks, ETFs, bonds, etc, traded on the National Stock Exchange. Alternatively, the Central Depository Securities Limited works to keep electronic copies of stocks, ETFs, bonds, etc, traded on the Bombay Stock Exchange. Hence, NSE is where the National Securities Depository Limited operates while BSE is where the Central Depository Securities Limited operates.
– Additionally, the National Securities Depository Limited was established as India’s very first electronic depository incorporated in 1996. It is slightly older than the Central Depository Securities Limited which was the second official depository established in India for investors. CDSL was established in 1999.
– NSDL is promoted by the ‘National Stock Exchange’ of India. The National Securities Depository Limited is also promoted by India’s premier banks and financial institutions like the Industrial Development Bank of India and Unit Trusts of India. Alternatively, the Bombay Stock Exchange and the State Bank of India promote the Central Depository Securities Limited. Other premiere banks and financial institutions also promote the CDSL such as HDFC Bank, Bank of Baroda, Bank of India, and Standard Chartered Bank, to name a few notable institutions.
– In terms of active users, the latest data suggests that as of March 2018, Central Depository Securities Limited had 1.1 crore active accounts while National Securities Depository Limited had about 1.5 Crore active accounts.
NSDL or CDSL: Which is Better?
As detailed above, besides where they operate, there is not much difference between CDSL and NSDL. Both depositories are registered by the Indian Government, regulated by the Securities and Exchange Board of India, and offer pretty much identical services to investors holding electronic copies of their stocks. From the point of view of an investor, these services are interchangeable. Which is better, hence, is a question of which stock exchange one primarily looks at for their trading.
Ultimately, this question of which depository is better is also somewhat futile. An investor has no say regarding which depository they may want to open their Demat account with. The investor’s brokerage or their depository participants determine this decision. By comparing which depository will be more conveniently accessible and economical to open a Demat account with, the depository participant or broker will pick between NSDL or CDSL. On behalf of their customers, the brokers can credit or debit securities from either of these depositories, providing they hold valid power vested to them by an attorney permitting them to do so.
FAQs
What is the difference between NSDL and CDSL?
NSDL handles securities traded on the National Stock Exchange (NSE), while CDSL manages those on the Bombay Stock Exchange (BSE). Both serve as depositories for holding securities in electronic form.
How do NSDL and CDSL function?
They act as depositories that store securities electronically, similar to how banks hold money. Investors access these services through depository participants (DPs), such as banks and brokers.
Which depository is better for investors, NSDL or CDSL?
Both offer identical services, and investors cannot choose between them. The selection depends on the broker or DP with whom the investor opens a Demat account.
What services do NSDL and CDSL provide?
They offer dematerialisation, rematerialisation, electronic settlements, corporate actions like dividends and bonuses, and secure record-keeping of securities.
Who regulates NSDL and CDSL?
Both depositories are regulated by the Securities and Exchange Board of India (SEBI) to ensure transparency and compliance in securities trading.
