The main difference between NSDL and CDSL is that NDSL has the National Stock Exchange as the primary operating market, and CDSL has the Bombay Stock Exchange as the primary operating market.
Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) are the two depositories in India. Depositories are entities that hold financial securities such as stocks in dematerialised form. It is similar to bank accounts where you store your money. However, instead of money, shares are stored in the depository in electronic form.
You have to open a Demat and Trading Account to buy and sell shares. When you purchase shares, they are credited to your Demat account, and when you sell shares, they are debited from your Demat account.
Where does the depository fit? The Demat account is only an intermediary, and the shares you purchase are held in depositories such as CDSL and NSDL.
Depositories eliminate the risk of holding physical securities. For instance, share buyers had to ensure that shares were transferred safely to their accounts before depositories. However, depositories eliminated these problems and shares were transferred in electronic form.
Depositories hasten the share trading process and minimise the paperwork. Moreover, depositories facilitate huge share trading volumes, eliminating forgery and unscrupulous share transfers.
Let’s understand the working of a depository with an example. Suppose you place a market order and purchase 10 shares of Company XYZ at Rs 1,000 through your online trading platform. You receive 10 shares of Company XYZ in your Demat Account in T+2 days. (Trading Day + two working days). The depository transfers the ownership of these shares to you.
Suppose the share price of Company XYZ rises to Rs 1,200 after one month. You will have to place an order from your trading platform if you intend to sell these shares. The shares are debited from the Demat account, and the money is transferred to your bank account in T+2 days. The depository transfers the ownership of these shares to the new buyer.
Investors cannot open a Demat account directly with NSDL or CDSL. They have to approach a Depository Participant such as Banks or Stock Brokers who facilitate the account opening process with depositories. Depository participants are intermediaries between Depositories and investors.
National Securities Depository Limited or NSDL is one of the world’s largest depositories. It was established in August 1996 after enacting the Depositories Act with state of the art infrastructure to handle securities in the dematerialised form.
NSDL maintains Demat Accounts, where financial securities are stored in the dematerialised or electronic form. It eliminates the need for a physical share certificate, thereby avoiding the risk of theft and damage. Moreover, there is no stamp duty on securities transferred through depositories.
NSDL has around 2.66 crore Demat Accounts as of March 31, 2022. NSDL counts the National Stock Exchange (NSE), Unit Trust of India (UTI) and Industrial Development Bank of India (IDBI) as its promoters.
Central Depository Services Limited or CDSL is the first listed depository in India. It was established in 1999 to hold various securities, such as shares, bonds etc., in electronic form. CDSL counts the Bombay Stock Exchange (BSE), SBI, Bank of Baroda, Union Bank of India, HDFC Bank and Standard Chartered Bank as its promoters.
CDSL facilitates the transaction of securities such as equities, debentures, Exchange Traded Funds (ETFs), mutual fund units and alternative investment fund units, commercial papers, certificates of deposit, government securities, treasury bills etc.
CDSL received the certificate of commencement from SEBI in February 1999. It was listed on NSE through an IPO on June 30, 2017. Moreover, CDSL is the sole depository to get listed on the stock exchange in the Asia-Pacific Region.
CDSL and NSDL are similar entities registered with the Indian Government and regulated by SEBI. However, depository participants decide which depository to opt for, and investors don’t have much say.
The investor services offered by NSDL and CDSL are similar. Moreover, depository participants choose CDSL or NSDL depending on convenience and other benefits. Hence the depository you get depends on which stock exchange you look for trading.