Before investing in the stock exchange, you must be aware of the depositories. A depository is a financial institution that holds your investments in shares and equities in dematerialised form. Moreover, depositories also facilitate trading in shares.
There are two depositories in India regulated by the Securities and Exchange Board of India: Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).
Read on to know more about CDSL vs NSDL and how both these depositories function.
What are Depositories and How Do They Function?
To understand the working of CDSL and NSDL better, you need to understand what depositories are and how they function. These institutions maintain the ownership records of securities.
In their functioning, depository participants play a major role by linking them with investors. Because they perform intermediary functions between the investor and depository, DPs are also known as stockbrokers.
When you start trading, you need to open a Demat account through depository participants (DPs). The records of securities you buy or sell reflect in this Demat account.
The depositories facilitate trading between you and the investor by providing them with your information. Using this information, listed companies send you notifications related to dividend rights, stock splits, etc.
What is CDSL?
To understand the discourse of CDSL vs NSDL, you need to know about these two financial entities. The CDSL stands for Central Depository Services Limited. It was incorporated in 1999 as a depository to hold securities in electronic form.
The promoters of CDSL include the following:
So, simply put, the CDSL holds your assets when you invest in any of these:
CDSL has been regulated by SEBI since its inception in February 1999. Moreover, it was listed in the National Stock Exchange, making it the sole depository in the Asia-Pacific region to be listed in a stock exchange market.
What is NDSL?
National Securities Depository Limited (NDSL) is the second major depository. It is also one of the world’s largest depositories. As of April 30, 2023, there are over 3 Crore active NSDL Demat accounts.
The NDSL was established in August 1996 under the Depositories Act enacted by the Indian Parliament. The depository was then laden with state-of-the-art technology to handle securities in electronic form.
An NSDL Demat account allows you to store your securities in an electronic form. It eliminates the need to keep physical share certificates. The following are the promoters of the National Securities Depository Limited:
So, with an NSDL Demat account, you can rest assured that your shares are safe. Dematerialised securities cannot be stolen or lost. In addition, by dematerialising your shares, you also do not have to pay any stamp duty.
CDSL vs NSDL: Difference Between India's Two Major Depositories
Both CDSL and NSDL offer similar kinds of trading services. Moreover, the Securities and Exchange Board of India (SEBI) regulates both these depositories. However, there are certain differences between the two.
Here are some of the CDSL vs NSDL differences:
CDSL vs NSDL: Which One to Choose?
As both CDSL and NSDL offer similar trading and investment services, you can choose either of these. Both of them are also regulated by SEBI. However, both these depositories have a different set of depositor participants (DPs) and promoters.
In terms of services to investors, there is no key difference between having a Demat account with a DP registered either with NSDL or CDSL. Both are regulated by SEBI and provide similar trading and investing services.
However, note that you cannot directly choose depositories. You can only open a Demat account with Depository Participants (DPs) of the respective depository.
In conclusion, if you want to invest in shares, stocks, bonds, etc., you will have to do so through a depositary. However, to open a Demat account, you need to apply for it with a Depository Participant (DP).
Note that both CDSL and NSDL are similar entities offering similar services. However, if you want to find out if your Demat account is linked with which depository, you can do so by looking at the account number specifics.