As an investor, you must have come across the terms “NSDL and “CDSL” during your trading journey. These terms are often heard when you open your demat account. Both of these are depositories which are registered by the Indian government.
Whenever you open a demat account, it is opened at one of these two depositories. Your demat service provider is a depository participant who is authorized for opening accounts on the depository. All your financial instruments like shares, bonds etc. are held by the depositories.
A depository helps in trading in securities and other financial instruments in dematerialized form and also helps in settlement of trades. Depository participants can be considered as the agents of these depositories who interact with clients on the basis of depositories. These depository participants can be brokers, banks or similar organizations. As a client, you generally choose the depository participant and not the depository. The selected depository participant might open your account on either NSDL or CDSL.
NDSL or National Securities Depository Limited and CDSL or Central Depository Services Limited are the two main depositories of India registered by the Indian government and hold millions of financial assets in the form of stocks, bonds and ETFs.
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Difference Between NSDL and CDSL
Functions of NSDL and CDSL
NSDL and CDSL are the two registered depositories of India. They are responsible for holding financial assets like shares, bonds, ETFs etc. in dematerialized form. These financial assets are credited on debited when the investor holding them places a request through their depository participant. Depositories function similar to banks. The banks hold money whereas depositories hold financial assets like bonds, stocks, debentures etc. Depositories have helped in electrification of the trading system in the Indian financial markets.
Earlier, financial instruments were traded in physical form. Stocks were traded as paper certificates which was very inconvenient and had many risks. The depositories have helped in dematerialization of the securities which have eliminated the risks and inconveniences involved in holding and trading physical securities. The dematerialization system has also helped to reduce the processing time of transactions and also helped in reducing the cost. This has allowed many investors to invest in the markets.
Differences Between NSDL and CDSL
NSDL and CDSL, both are depositories registered by government of India and have nearly similar functions. Let us now look at some of the key differences between them.
NSDL or National Securities Depository Services Limited is accredited as Indian’s first depository and establishment dates back to 1996. Central Depository Services Limited is a relatively new depository and was established in the year 1999.
The NSE or the National Stock Exchange is the promoter of NSDL. It is also promoted by prime banks and financial institutes including the Unit Trusts of India and Development Bank of India. On the other hand, CDSL is promoted by the Bombay Stock Exchange or BSE. Some other key promoters of CDSL include State Bank of India, HDFC Bank, Standard Chartered Bank etc.
In terms of user accounts, NSDL is also the largest depository of India with over 1.5 Crore active accounts. CDSL is just behind NSDL with 1.1 Crore active accounts.
NSDL or CDSL – Which One to choose?
As we already know, there are hardly any differences between the two depositories. Both are registered by the Indian government and regulated by the Securities and Exchange Board of India (SEBI). Also, both these depositories offer nearly identical service of holding financial instruments in dematerialized form. From an investo9r’s perspective both the depositories are exactly same, therefore choosing one depends on the stock exchange you are looking forward to trade on.
Also, as we already discussed an investor has no control on which depository their depository participant will open heir demat account. The depository participants choose a depository based on a number of factors like ease of access, low charges etc. Once a demat account is opened on any of these depositories, investors can place trade orders through their brokers and the depositories manage the credit and debit of securities and other financial assets accordingly.
Conclusion
The establishment of depositories and the subsequent dematerialization of securities has surely helped in enhancing the trading experience for investors. You can get a demat account through your depository participant and it is absolutely futile to compare both the depositories to find out which one is better. However, you can ensure that you choose a good demat service provider. Once you have your demat account you can start trading and investing in the market. An investment advisor can help you invest in the market by providing research-based recommendations.
Happy Investing!
