Trading in the stock market was lethargic before the existence of the Depository system, which was introduced through the enactment of the Depository Act, 1996. It was due to excessive paperwork, a huge time gap for confirmation between buyers and sellers, and ample document requirements. Not just that, people were afraid of trading in the market due to frauds and blunders in the trading system. This led to a need for Depository in the financial market.
This article highlights the meaning of depository, its role, the difference between NSDL and CDSL, and the better one amongst them.
What is a Depository?
A depository means an entity that stores and safeguards the financial assets in a dematerialized form. Similar to the banks holding your fund, the depositories hold and safe keep your shares, debentures, bonds, certificates of deposits, etc. There are two depositories in India, namely NSDL and CDSL. They connect with the investors through Depository Participants (DPs).
What are Depository Participants?
The Depository Participant is the mediator between the investors, the company, and the depository. Depository participants are the registered agents or stockbrokers through which investors open accounts with depositories. All the depository participants in India are connected with either of the depositories.
What is NSDL in the Stock Market?
National Securities Depository Limited (NSDL) is one of the world’s largest depositories managing the dematerialized financial securities in the Indian stock market. NSDL offers numerous services such as maintaining Demat accounts, allotment of public issues, Consolidated Account Statement, and Alerting the investors about essential investment-related information.
What is CDSL in the Stock Market?
Central Depository Services Limited (CDSL) is another national depository in India. CDSL was listed on National Stock Exchange on June 30, 2017. It was the first and only depository that got listed on the stock exchange in the Asia-Pacific region, and the second depository across the globe, to date (As per the annual report of CDSL 2020-21). Similar to NSDL, CDSL offers services like maintaining a Demat account, electronic access to securities information, SMS alerts about transactions, e-voting, e-locker, etc.
Role of NSDL and CDSL
NSDL and CDSL play a crucial role in the stock market:
- The depositories help you to stay away from the risks of carrying physical assets, such as damage, loss, or theft of share certificates, by holding securities in paper-less form.
- NSDL and CDSL help to bring liquidity to the market by providing margins to their clients.
- The depositories play an important role in transferring share ownership to you when you buy any financial asset.
- The existence of these depositories reduced the chances of fraud and bad deliveries.
What is the Difference between NSDL and CDSL
Though NSDL and CDSL both perform similar functions, here are a few noteworthy differences between NSDL and CDSL.
- Stock exchange: The primary difference between NSDL and CDSL is related to the stock exchange they work for. Mainly, the NSDL works to hold the securities of the National Stock Exchange, whereas the CDSL works to keep the securities for the Bombay Stock Exchange. Though, exchanges are free to use either of these depositories for trading and settlement of securities.
- Promoters: Another difference is in terms of promoting stock exchange, banks, and financial institutions. National Securities Depository Limited is promoted by the National Stock Exchange(NSE), Industrial Development Bank of India (IDBI), and Unit Trusts of India (UTI). On the other hand, Central Depository Services Limited is promoted by the Bombay Stock Exchange (BSE), State Bank of India (SBI), HDFC Bank, Bank of Baroda, Standard Chartered Bank, etc.
- Established in: NSDL is the oldest Indian depository which was set up in August 1996. CDSL came into existence slightly later, in the year 1999.
- Demat account number format: If your Demat account is with NSDL, your 16-digits Demat account number will begin with ‘IN’, followed by 14 numbers. Instead, if your depository is CDSL, the 16-digits Demat account number will be numeric digits.
- Statistics: NSDL had 276 depository participants, whereas CDSL had 588 registered depository participants as of 30th April 2022. In the same period, NSDL has 2,70,78,156 active accounts as compared to 6,50,35,578 active accounts of CDSL. Moreover, NSDL has 283151 crore securities under Demat custody worth Rs. 305.07 lakh crore, whereas, CDSL has 57,858.7 crore securities under Demat custody worth Rs. 37,29,607.6 crore.
NSDL or CDSL which is better?
To be able to rank alternatives, they shall have significant differences, which is not in the case of NSDL and CDSL. Both depositories perform similar functions and offer pretty similar services. Both are registered with the government and governed by the SEBI. Therefore, there is no particular answer to NSDL or CDSL which is better.
To wrap up, NSDL and CDSL are Indian depositories that facilitate the secured storing of financial assets in electronic form. Functions and services being pretty similar, these depositories only differ in terms of the stock exchange, promoters, Demat account number format, and some statistics. Both depositories actively work in the market to keep security trading smoother.
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You can contact your broker or check Demat account-related documents to check whether your account is with NSDL or CDSL. If your 16-digits Demat account number begins with ‘IN’, followed by 14 numbers, your Demat account is with NSDL. Instead, if the 16-digits Demat account number is numeric digits, your depository is CDSL.
CDSL has more number of registered intermediaries and more active Demat accounts as compared to NSDL. Therefore, CDSL can be said to be bigger in terms of the number of DPs and active accounts.
Yes, Inter-depository transfer is possible. You can either manually transfer your shares from NSDL to CDSL through Delivery Instruction Slip or online through Speed-e-facility.
If you have a Demat account with NSDL, you can sell the share by placing the sell order on your brokerage platform and get the money into your linked bank account.
No, NSDL is not a Public Sector Undertaking. NSDL is a private organization providing depository services in India.