NSDL V/s CDSL - A guide to Indian Depositories

In the Indian stock market, any shares that you purchase today will be held electronically, instead of physical share certificates, in a special account known as the demat account. Without the demat account, you cannot trade or invest in the Indian stock market. As of now, only two entities offer demat accounts in the country: the CDSL and the NSDL.

Here’s all you need to know about these two entities, including what they are and the differences between NSDL and CDSL.

What is NSDL?

The National Securities Depository Limited (NSDL) is one of the two main depositories in India, established in 1996. It was the first depository in India and was created with the aim of facilitating the holding and transfer of securities electronically. By eliminating the risks and inefficiencies associated with paper-based securities, NSDL has significantly improved the process of trading and managing securities. It provides a robust infrastructure for the dematerialisation of shares and ensures seamless transactions for investors, brokers, and other market participants.

What is CDSL?

The Central Depository Services Limited (CDSL) is the second depository in India, established in 1999. CDSL offers similar services to NSDL, providing a platform for the dematerialisation and electronic transfer of securities. It aims to enhance the efficiency and security of the Indian financial markets by offering convenient, quick, and secure services. CDSL allows investors to hold securities such as stocks, bonds, and mutual funds in electronic form, reducing the risks of loss, theft, or forgery associated with physical certificates.

Differences between NSDL and CDSL

Although both the NSDL and the CDSL are securities depositories and work in the same manner, they do have a few dissimilarities. The differences between NSDL and CDSL have been tabulated below:

Note: Although a stock exchange is associated with a depository, it may also use the other depository to settle securities. For instance, the NSE may use the CDSL instead of the NSDL to settle traded securities.

How do depositories work?

Before we head to the section where we compare NSDL vs CDSL, here is a closer look at how these two entities work.

The primary function of these depositories is to issue demat accounts. However, as an investor, you cannot open a demat account by directly approaching NSDL or CDSL. Instead, you would have to go through an intermediary entity known as the Depository Participant (DP).

Once you’ve opened an account with a depository of your choice through a DP, you can proceed to purchase shares or other securities via the stock exchanges. When you buy securities, your depository credits them to your demat account within the settlement date. And when you sell securities, your depository debits the requisite number of securities that you sold from your demat account and credits it to the buyer’s account.

For every trade that takes place in the market, the depositories debit the seller’s demat account and credit the buyer's demat account. As you may have realised by now, depositories play a vital role in the Indian stock market. They are pivotal to the practice of electronic trading in the country, which has replaced manual trading.

CDSL Vs NSDL - Which is Better?

Choosing between CDSL and NSDL depends on various factors, including user preference, brokerage tie-ups, and specific service needs. Both depositories provide essential services and are regulated by the Securities and Exchange Board of India (SEBI), ensuring high standards of operation.

• Coverage:

  NSDL is older and slightly more established, with a broader reach among financial institutions and brokers. CDSL, while newer, has been growing rapidly and has a significant presence.

• Technology:

  Both depositories offer advanced technological solutions, ensuring secure and efficient transactions.

• Cost:

  The cost structures for services provided by CDSL and NSDL might vary slightly, depending on the specific charges levied by the depository participants (DPs) associated with each.

Ultimately, both CDSL and NSDL are robust, and the choice may come down to the specific depository participant your broker is associated with or personal preference for customer service and interface.

Features of NSDL & CSDL

• NSDL:

  1. Dematerialisation: Facilitates the conversion of physical securities into electronic form, ensuring secure and convenient handling.
  2. Rematerialisation: Allows conversion of electronic holdings back into physical certificates if needed.
  3. Account Maintenance: Provides comprehensive account maintenance services, including updating investor details, account statements, and transaction summaries.
  4. Settlement Services: Ensures efficient settlement of trades, reducing the risks of delay and default.
  5. Corporate Actions: Manages corporate actions such as dividends, interest payments, and bonus issues electronically.
  6. Pledge Services: Enables pledging of securities for loans, ensuring seamless and secure processes.

• CDSL:

  1. Dematerialisation: Similar to NSDL, CDSL offers conversion of physical securities into electronic form, ensuring safety and ease of transaction.
  2. Rematerialisation: Provides the option to revert electronic holdings to physical form.
  3. Transaction Statements: Issues regular transaction statements, helping investors keep track of their holdings and transactions.
  4. Electronic Credit of Securities: Facilitates direct electronic credit of securities into investor accounts, enhancing efficiency.
  5. Corporate Benefits: Manages corporate benefits electronically, ensuring timely and accurate processing.
  6. Ease of Access: Provides user-friendly access to account information through various platforms, including mobile apps and online portals.

Both NSDL and CDSL play crucial roles in modernising India's financial markets by offering secure, efficient, and user-friendly services for managing securities electronically. The choice between the two often boils down to the depository participant's affiliation and personal preference for specific features or services.

List of services provided by CDSL and NSDL

Now that you’ve taken a good look at the comparison between CDSL vs NSDL, here’s an overview of some of the services offered by both depositories:

• Opening and maintenance of demat accounts
• Dematerialisation and rematerialisation of shares and other securities
• Settlement of trades
• Transfer of securities between demat accounts
• Off-market transfer of securities between demat accounts
• Transmission of securities
• Distribution of corporate actions like bonus share issues, mergers and share splits
• Demat account nominations
• Account opening
• Account statement
• Changing account details

Conclusion

With this, you must now be aware of what depositories are, how they function and the differences between NSDL and CDSL. As an investor, you don’t usually need to choose the depository when opening a demat account. Instead, it automatically depends on the depository your DP is associated with.

For instance, Mirae Asset Capital Markets (India) Private Limited is a registered DP of CDSL. So, when you open a demat account via the m.Stock online trading platform or the trading app, your account will be linked to CDSL.

However, since both the depositories work similarly, as an investor, you shouldn’t notice any difference in the overall trading experience.