In India, Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) are the government registered share depositories. In simple words, a share depository holds stocks, bonds, ETFs, MFs, shares, etc., in an electronic form. In the earlier days, share trading was only available in offline modes, they were held in the form of physical paper certificates. CDSL and NSDL are linked to one stock exchange in India. For example, there are two stock exchanges, one is National Stock Exchange (NSE), and the other is the Bombay Stock Exchange (BSE). Hence, CDSL is the Bombay Stock Exchange (BSE) depository, and NSDL is the depository for National Stock Exchange (NSE).
Although they share some similarities, both these depositories do have some differences as well. In this blog, Fintra will highlight the following points that will compare CDSL vs NSDL:
As described earlier, CDSL and NSDL are the two well-known national share depositories incorporated by the Securities and Exchange Board of India (SEBI), the markets regulator. Briefly describing both the depositories, NSDL or National Securities Depository Limited was founded to maintain investors' shares in dematerialised form. In fact, NSDL is currently one of the largest depository institutions in the world. On the other hand, CDSL or Central Depository Services (India) Limited, which is the second depository institution in India, is a Market Infrastructure Institution (MII) that acts as the mediator between the exchanges, clearinghouses, DPs, issuers, and investors. CDSL fosters a safe storage of securities that are held by investors in dematerialised form, and it even enables the smooth processing of securities purchases and sales. Even CDSL holds various securities such as shares, bonds, and more in an electronic form. On 30 June 2017, CDSL was listed on NSE, becoming the first depository to be listed in the Asia - Pacific Region.
Both NSDL and CDSL not only enables you to store shares in dematerialized form but also offer other financial instruments such as Debentures, Bonds, Exchange-traded Funds (ETFs), Mutual Funds, Government Securities (GSecs), Treasury Bills (T-bills) etc.
The following is the list of services provided by CDSL and NSDL:
Dematerialisation and Rematerialisation
Maintenance of Demat Accounts
Off-market and Market Transfers
Distribution of non-cash corporate actions
Changing Account Details
Although they appear to be similar, the following are the key differences between NSDL and CDSL:
Conversely, though CDSL's primary promoter is the Bombay Stock Exchange, along with BSE, the shares of CDSL are held by the following companies and entities:
The most basic requirement to do trading in stocks is to open a Demat account. A Demat account is similar to what a depository does. For example, when purchasing shares, they get credited to an investor's Demat account, and when selling the shares, they get debited from the investor's Demat account. So you might be wondering how did a depository account come into the picture now? Well, the Demat account is simply an intermediary, and actually, it's the CDSL and NSDL that holds an investor's shares. Thus, when opening a Demat account to purchase shares, the shares are held by the depositories.
One another vital function that a depository performs is when the companies have to distribute dividends to the shareholders. Since the firms require information on the shareholders, here is where share depositories come to their aid. Earlier when investors bought shares from someone else or sold the shares to someone, they had to transfer share certificates. Now, with the innovation of new technology, it is simply just an account transfer between two Demat accounts.
In conclusion, from the above information, we can note that NSDL and CDSL have minor distinctions like their names, promoters, establishment years, and account number formats. On the whole, the essence of both the depositories is the same. For example, they provide similar services, their strategy is the same, and work the same ways. As an investor, one can avail CDSL and NSDL services through a depository participant, which can be a broker, a financial institution, a custodian, or a bank. With any DP one can open a Demat account, and all depository participants are required to provide all the shareholders with a statement of account of the securities held and traded at the depositories.