What are NSDL and CDSL? Check Out the Difference Between the Two

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Synopsis:

The NSDL and the CDSL are the key depositories of India, safeguarding shares once they are deposited in Demat accounts. Each is a depository with distinct functions and relevance to the Indian financial markets and investors.

If you have an idea about stock markets or share investing, you may have heard of a Demat account. You can open a Demat account just like a bank account. Whereas a bank account acts as a custodian and a storehouse of your money, a Demat account plays the role of a storehouse of your shares and other securities, held in digital formats. The Demat account holds your securities but certain depositories ensure the safety of these securities. These are the National Securities Depository Limited or NSDL and the Central Depository Services Limited or CDSL. These depositories are both important in relevant ways and if you are an investor it is important to know what they are and how they function in their roles. 

Article Highlights

  • What is a depository?

  • Paper Securities to Digital Securities

  • Differences Between the NSDL and the CDSL

What is a Depository?

A depository is an entity that is responsible for the holding of securities such as shares, bonds, debentures, mutual fund units, government securities, and more. These are held in digital formats at the request of any investor. The holding of these is not processed between the investor and the depository directly, but through an intermediary, the depository participant (DP). So, if you open a Demat account with a broker, your broker is the DP. 

The function of both the depositories in India - the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL) - is to securely hold the securities in any investor’s Demat account. Depositories also enable the transfer of shares and other securities between accounts when the Demat account holder poses such a request. Furthermore, depositories have another function and can transfer the ownership of securities via digital processes (without the physical handling of securities). A broker, who opens a Demat account on your behalf, via the NSDL or CDSL, is called a depository participant (DP) only if they are officially registered with the depositories. DPs also have to be officially registered with the main stock exchanges like the BSE (Bombay Stock Exchange), the NSE (National Stock Exchange), and the MCX (Multi Commodity Exchange) to permit you to open a Demat account or to enable trading and settle trades. For a seamless experience, download Bajaj Broking.

Paper Securities to Digital Securities

The capital market of India has a long history, coloured by many milestones. Previously, in the age of our forefathers, securities like stocks were held in physical forms as certificates. These were prone to many hazards including theft, loss, and damage. Settlements were also adversely affected due to paper-centric settlement, the consequences of which were delays and poor deliveries. In August 1996, the Depositories Act laid the foundation for the creation of the National Security Depository Limited (NSDL). The CDSL or the Central Depository Services Limited saw its inception a few years later in 1999. 

Differences Between the NSDL and CDSL

Both the NSDL and the CDSL share commonalities as both are the depositories of India. Besides this obvious fact, they both act as controlling organisations under which a broker is a depository participant (DP) and is authorised by the depositories to open a Demat account. However, there are certain differences between the two organisations based on some parameters:

  • Year of Commencement

The NSDL commenced in 1996, whereas the CDSL began its operations in 1999.

  • Endorsements and Support

The National Securities Depository Limited (NSDL) is backed by prominent entities like the Unit Trust of India, the National Stock Exchange (NSE), and the Industrial Development Bank of India. The Central Depository Services Limited (CDSL) is endorsed by significant bodies like the Bombay Stock Exchange (BSE), the Bank of India, and the State Bank of India. 

  • Depository Participants

The NSDL has 282 registered DPs as of 30 April 2024, while the CDSL has 583 registered DPs under its purview. 

  • Listing

The CDSL is a publicly listed company while the NSDL is not. Therefore, you can buy CDSL stock on the stock market, but there are no stocks of NSDL for sale. 

NSDL & CDSL - Empowering Digitisation

Most share transactions or transactions involving any securities are conducted online and digitally in the present day. This has substantially and relevantly reduced any possible errors, loss, damage, and other hazards. Transactions may be carried out transparently and securely facilitating seamless trading through devices and on the go. The National Securities Depository Limited (NSDL) is considered the pioneer in terms of the electronic enablement and processes of transactions related to the Indian financial markets. However, with both the NSDL and CDSL operating actively in the Indian financial markets, investment in the securities markets has been given a huge push and more investors are likely to be present in the future.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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