Difference Between NSDL and CDSL
The process of buying and selling shares is possible in India because of depositories and as an investor, it is important to know about the two functioning depositories.
In India, there are two depositories: National Securities Depositories Ltd (NSDL) and Central Securities Depositories Ltd (CDSL). Both the depositories hold your financial securities, like shares and bonds, in dematerialised form and facilitate trading in stock exchanges. However, to make use of the depositories and start your investing journey, you must open a Demat account and a trading account. You must always remember to open the best Demat account with a reliable stockbroker as it will help you make wise investment decisions.
Understanding depositories and depository participants:
- Both NSDL and CDSL are depositories that maintain ownership records of financial securities. They are linked with investors through Depository Participants (DPs), also called stockbrokers.
- A DP is a depository agent acting as an intermediary between the depository and its clients. DPs are registered with the depository via the relevant provisions of the SEBI Act. You have to open a Demat account with a DP to avail the services of depositories.
- Typically, DPs are stock brokerage firms that provide investors with the service of opening Demat and trading accounts along with providing a trading platform, market reports and other value-added services.
Functioning of Depositories
- Once you start trading, the securities you buy or sell are debited or credited from the depository and reflected in your Demat account.
- Depositories provide information to listed companies about shareholders while facilitating trading transactions. Furthermore, the listed companies approach the depositories to get information about the shareholders to send notifications such as dividend rights, stock splits etc.
What is NSDL?
- NSDL is the oldest and largest depository in India. It commenced operations in 1996 in Mumbai. It was the first depository to provide trading services in electronic format.
- According to data from SEBI, NSDL has around 2.4 crore active investors, with more than 36,123 depository participant service centres across 2,000 cities.
- NSDL is entrusted with the safekeeping of the following financial securities in the electronic format:
- Stocks
- Bonds
- Debentures
- Commercial papers
- Mutual Funds
- NSDL offers a wide range of services, like:
- Dematerialisation services
- Rematerialisation services
- Transfers between depositories
- Off-market transfers
- Lending of securities
- Collateral and mortgage of securities
What is CDSL?
- CDSL started operations in Mumbai in 1999 and is the second-largest depository in the country after NSDL.
- Like NSDL, it provides all services, like holding financial securities in the electronic format and facilitating trade and settlement of orders. All forms of stocks and securities - just like NSDL - are held at this central depository.
- According to data from SEBI, it has more than 5.2 crore active customer accounts with around 21,434 depository participant service centres.
Registration of DPs with NSDL and CDSL:
A stockbroking firm usually selects between the two depositories for registration on the basis of fees and charges, services, and other aspects such as ease of doing business. As an investor, you can check with your DP to know whether they are registered with NSDL or CDSL. Some stockbrokers are also registered with both depositories.
Difference between NSDL and CDSL:
In terms of services to investors, there is no key difference between having a Demat account with a DP registered either with NSDL or CDSL. Both are regulated by SEBI and provide similar trading and investing services. The only difference between both the depositories is their operating markets. While NSDL has National Stock Exchange (NSE) as the primary operating market, CDSL’s primary market is the Bombay Stock Exchange (BSE).
CDSL Vs NSDL - Which is Better?
You will have to consider the difference between NSDL and CDSL to determine which is better. In the end, the decision between choosing one of these depositories will depend on the specific needs of the investor. Remember that both of them come with different strengths and serve the Indian securities market.
But NSDL has a larger market share and provides different services like e-voting and electronic security pledges. If you want to make a proper decision between NSDL and CDSL, you can focus on assessing the following factors:
- Reputation of the depository participant
- The exact services required by the investor
- Ease of using the associated stock exchange
Investors should also check the customer service, charges, and user experience offered by the depositories before making a decision. You cannot call one better than the other because both the depositories are on the same boat.
You will come across differences between the two depositories in terms of market share, year of establishment, and operating markets. The depository participants, as well as the format of the Demat account, are also different for them. But none of these differences establish one of them above the other.
How do Depositories Work?
Are you seeking a thorough understanding of what is NSDL and CDSL? In that case, you should become familiar with the role of depositories in the market segment of securities. Remember that depositories serve as centralized institutions.
They will hold the securities of investors in electronic formats. If you purchase securities, the depository will credit your demat account with that. When you are selling them, the depository will credit the buyer's account with the securities.
By enabling secure transfer, storage, and settlement of securities, depositories eliminate the purpose of having physical certificates. They have partnerships with intermediaries like brokers and stock exchanges to enable smooth transactions and maintain accurate ownership records. Therefore, depositories can make trading in the securities market smoother and more convenient.
Depositories have one key role to play while companies are distributing dividends to their shareholders. Information on shareholders is crucial for companies, and share depositories play a significant role in this process. In the past, transferring share certificates was necessary when buying or selling shares. But now these transactions are simplified to account transfers between two demat accounts.
Conclusion:
An investor can easily open a Demat account, and a trading account with a DP linked with either of the depositories. While beginning your investment journey in stock markets, always remember to choose a trusted and reliable stockbroker who can provide you with cutting-edge trading platforms and features like a free online Demat account and zero Annual Maintenance Charge (AMC).
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Frequently Asked Questions
NSDL does not serve as a government entity. The Companies Act 1956 incorporated it under the category of a private limited company. In 1996, several financial institutions actively came together to establish the NSDL.
You can transfer your shares from NSDL to CDSL or the other way around. This particular process can be termed an inter-depository transaction or transfer.
It can be extremely difficult to figure out whether one is better than the other. The basic functioning of the two depositories, along with their services, are more or less the same. You will come across some differences in the number of demat accounts, promoters, and establishment years. Your depository participant will pick one between the two. But there's no particular reason behind why the DP is going with that particular option. Remember that your investment decisions, your returns, and the overall performance of your portfolio won't be affected by the choice between NSDL and CDSL.
You have the right to become a depository participant for both NSDL and CDSL. DPs serve as entities authorized to offer depository services to investors. They are intermediaries between investors and the depository. If you want to have both NSDL and CDSL, you will have to fulfil the eligibility criteria set by these two depositories. Additionally, you will have to abide by all the regulations set by SEBI.
Both NSDL and CDSL are under SEBI's regulation. But the operating markets of the two depositories are different. The board of directors and the shareholders of CDSL have huge control over it. Remember that BSE is a major CDSL shareholder. The board of directors of NSDL, along with some other financial institutions, control the depository. The NSE and financial agencies like the UTI and IDBI are known to have control over the NSDL.