NSDL and CDSL: All you need to know about India's share depositories
Depositories play an integral role in the smooth functioning of financial markets as they maintain the ownership records of securities. The depositories are linked with investors through Depository Participants (DP).
National Securities Depositories Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL) are the two functioning depositories in India that are regulated by the Securities and Exchange Board of India (Sebi). These depositories are widely responsible for facilitating trading in stock exchanges as they hold financial securities, like shares and bonds, in dematerialised form. These institutions have played a significant role in transforming from investors holding physical share certificates to electronic ownership.
Before we begin the NSDL vs CDSL discussion, let’s understand their basics.
What are NSDL and CDSL?
The two national share depositories, NSDL and CDSL, were set up in 1996 and 1999, respectively. Further, NSDL, which is one of the largest depository entities across the globe, is the major depository for NSE. CDSL is the major depository entity for BSE. However, the exchanges can use either of these to settle trades. Notably, CDSL also holds the status of being the first depository to be listed in the Asia-Pacific region after it was listed on the NSE on June 30, 2017.
What are the roles of NSDL and CDSL in the stock market?
The depositories are an important link between the exchanges, clearing houses, DPs, investors, and issuers. They hold financial securities and instruments in a dematerialized or electronic form. The market participant has to place a request to any of these depositories through their DP. Once a transaction is successfully concluded, it gets reflected in the investor’s demat account.
Not only do depositories facilitate these trading transactions, but they also communicate the information to the listed companies about such trading details. The listed companies use this information to communicate with their shareholders regarding dividend rights, stock splits etc. The depositories have added time and cost efficiencies in conducting transactions in the stock market.
The financial securities they handle are not just limited to shares, they also store debentures, bonds, exchange-traded Funds (ETFs), mutual funds, government securities (GSecs) and treasury bills (T-bills) as well.
What are the key differences between NSDL and CDSL?
Market participants have often discussed the NSDL vs CDSL. However, there is no significant difference between NSDL and CDSL, and which depository an investor deals with depends on their DP or stockbroker. Still, let’s take a glance at some NSDL vs CDSL points:
● NSDL is the oldest depository in India. However, CDSL seems to be more popular than NSDL despite no major difference between NSDL and CDSL demat accounts. The number of DPs registered with CDSL stands at 599, whereas there are 278 DPs registered on NSDL.
● The difference between NSDL and CDSL demat accounts is their format. The CDSL demat account will have 16 numeric digits, and the NSDL demat account begins with IN, which is followed by 14 digits.
● NSDL oversees more than 2.5 crore investor accounts. On the other hand, more than 5.5 crore investor accounts are handled by CDSL.
● IDBI Bank Ltd, Unit trust of India, and NSE promote NSDL. Meanwhile, BSE, State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank and Union Bank of India are promoters of CDSL.
CDSL and NSDL are depositories that store financial securities in dematerialized form. Investors can opt for either of these as they only facilitate the trades and do not govern the returns. Rather, investors may focus on choosing the depository participant (DP) or stockbroker they want to engage with.
Q. How to discover that your Demat account belongs to NSDL vs CDSL?
NSDL demat account numbers start with the letters 'IN' followed by 14 digits. On the other hand, CDSL demat accounts have 16-digit account numbers. This helps discover with whom your demat account is registered.
Q. Which is bigger: NSDL or CDSL?
Although NSDL is the oldest, CDSL manages more demat accounts than NSDL.
Q. Which is better: NSDL or CDSL?
Both the depositories operate efficiently, strictly adhering to SEBI guidelines. Investors can easily choose any of them depending on the stock exchange and stockbroker they are dealing with.
Shares are broadly categorised into two types: Equity Shares and Preference Shares. Know the key differences between Equity and Preference shares in this blog.