The National Securities Depository Ltd (NSDL) and the Central Depository Services India Ltd (CDSL) are both share depositories in India.
What they do is just like a bank. While a bank holds your cash and fixed deposits, they hold shares, debentures, bonds etc., for all shareholders in the electronic form.
So, when you sell your securities they are automatically debited from the depository, and when you buy them they are automatically credited by the depository. So, in short, when you open a demat account your shares are held by these depositories.
When a company needs to know its shareholders to send dividend, rights or for any other notification, it can get information from the two depositories in India.
In India there are just 2 depositories the National Securities Depository Ltd and the Central Depository Services Ltd.
What is the difference between the NSDL and the CDSL?
The NSDL was promoted by some giant institutions including the likes of IDBI Bank, UTI, NSE and some other institutions
The CDSL was also promoted by some solid institutions including the likes of Bombay Stock Exchange, Bank of Baroda, Bank of India, HDFC Bank etc.
The other difference between NSDL and CDSL is the former began operations must before and was the pioneer depository in the country. The CDSL was established much after that.
Both the depositories charge a settlement fee for debit instructions for the client. One needs to compare the charges between the depositories.
Which depository to open your account would depend on the broker with whom you submit your application.
If the broker sees that the charges at CDSL are cheaper than NSDL he may opt for that option.
These days we see that a number of new accounts are being opened by brokers. One cannot be sure if it is because of the charges, service or other aspects that one is preferred over the other.
To open an account at one of these two, the Depository Participant must be registered with the Securities and Exchange Board of India.
These participants are allowed to debit and credit the accounts of the investor after valid instructions.
Also read: CDSL Accounts cross 1 crore
One can receive regular statements showing the balance held in the accounts of both the National Securities Depository Ltd and the Central Depository Services.
The software of both the nation's 2 depositories are reviewed regularly in order to ensure that they are very secure.
There is unlikely to be much difference between the CDSL and the NSDL, though investors can check with their broker before opening either a demat account.
Role of NSDL and CDSL
Both these institutions have played a tremendous role in helping shareholders move away from physical share certificates to holding shares in the electronic form. Today, we do not have to send physical share certificates for transfer like in the good old days, thanks to the role of NSDL and CDSL in helping to convert and hold shares in the demat form.
In fact, the last two decades or so, has led to tremendous contribution from both these institutions. One thing that we must also emphasize, especially of the role of NSDL is that the transformation from physical certificates to electronic certificates was by and large without any major glitches. That was good for shareholders and all others who moved from physical to electronic shares.
Other activities of NSDL and CDSL
Today, while both the two are depositories and in fact, the only depositories in the country, they have also diversified. For example, the NSDL and CDSL have subsidiaries that have repositories. These help to hold insurance certificates in the electronic form. So, just as you can hold shares in the demat account, they can now hold shares through repositories.