In India, the buying and selling of shares is solely handled by depositories which hold stocks and help in the trading process.
India has two important depositories for this process- NSDL and CDSL. They make trading in the stock market accessible for everyone.
NSDL stands for National Securities Depositories Ltd, and CDSL stands for Central Securities Depositories Ltd.
They act as digital wallets and hold stocks, bonds, mutual funds and any other electronic investments made by investors.
NSDL and CDSL play a crucial role in the Indian stock market across different segments.
As a result, it is crucial to understand what is NSDL and CDSL. To help you understand the same, this article is all you need. Let’s start with the basics.
How do Depositories Work?
To understand depository functioning, think of NSDL and CDSL as banks. But just like banks hold their customers’ cash, these depositories are responsible for holding customers’ shares and bonds in a digital/ electronic format.
When you buy or sell shares, you normally use a Demat account, but it just acts like a middleman here. The real holders of your shares are NSDL and CDSL.
These depositories also help when companies wish to pay dividends to their shareholders.
As companies need the full information of their shareholders to transfer the dividends, these depositories do the task on the company’s behalf.
They keep track of the shareholder’s information and make sure dividends reach the right people.
They additionally also help with splitting shares and merging companies.
What is NSDL and CDSL?
NSDL and CDSL are like big databases that keep track of shares and bonds held by investors.
They work with a Depository Participant (DP), also known as a stock broker and connect investors with these depositories.
To avail of the services of NSDL and CDSL you first need to open a Demat account with the DP.
NSDL
NSDL is the largest and oldest depository in India. It started its operations in 1996 in Mumbai and is supported by the IDBI Bank.
NSDL became the first depository in India to let people trade stocks electronically.
As of March 31, 2024, it has a total of 3.5 crore active investors, spread across 61,650 service centers in 2,000+ cities.
It keeps your digital investments like stocks, bonds, and mutual funds safe.
Some of NSDL’s services include:
- Making paper certificates electronic
- Moving stuff between different depositories
- Doing trades outside the stock market
- Lending you securities
- Collateral and loans of securities, and more
CDSL
CDSL began its operations in Mumbai in 1999 and is the second-biggest depository in India, just after NSDL.
Just like NSDL, it keeps your financial investments digitally safe and facilitates trading and settling share orders.
It holds all sorts of stocks and securities, just like NSDL does. It is promoted by the BSE-Bombaby Stock Exchange.
As of March 31 2024, it has more than 11 crore active customer accounts making it the largest depository in India in terms of active demat accounts. It has about 580 depository participants spread all over India.
Some of CSDL’s services include:
- Dematerialisation and Remateiralisaion
- Handling delivery and receipt instructions
- Pledging securities
- Settling trades
- Transferring shares
- Managing corporate actions
- Dealing with nominations and transmissions, and more.
Difference Between NSDL and CDSL
Although NSDL and CDSL differ in the way they operate, they’re quite similar to each other.
They are registered under the Government of India and regulated by the Securities and Exchange Board of India (SEBI).
However, there are some differences worth noting, like their market shares, promoters, and the number of registered DPs. Here’s a table that compares them:
| Difference | NSDL | CDSL |
| Stock Exchange | National Securities Depository Limited works with securities traded on the National Stock Exchange (NSE). | Central Depository Securities Limited works with securities traded on the Bombay Stock Exchange (BSE). |
| Promoters | Promoted by IDBI Bank Ltd, Unit Trust of India, and NSE. | Promoted by BSE only. |
| Market Share | NSDL holds a significant market share, with 89% of the demat asset value. | CDSL captures 73% of the depository segment. |
| Demat Account Number Format | NSDL Demat account code includes a 14-character numeric code beginning with IN. | CDSL Demat account code includes a 16-digit numeric code. |
| Depository Participants (DPs) | Total 281 DPs. NSDL has fewer DPs than CSDL. | Total 583 DPs. CDSL has more DPs than NSDL. |
Conclusion
In conclusion, depositories like NSDL and CDSL play an important role in investments by safeguarding our financial securities in electronic form.
NSDL, which is backed by IDBI Bank Ltd, UTI, and NSE, holds a significant market share, while CDSL, promoted by BSE, holds a lower share than NSDL.
Despite their operational differences, both offer similar services and are regulated by the Indian government.
Ultimately, NSDL and CDSL both look after the security and efficiency of our transactions in the stock market.
📌 You can also read:
- What Is Dematerialisation? Process, Benefits & Challenges
- Can you Open Multiple Demat Accounts in India?
- Where Should You Open a Demat Account?
- Can a Demat Account be Closed Automatically
Happy Investing 💰
