Practically every investor has come across the terms ‘NSDL’ and CDSL.’ These terms are commonly heard when one opens their Demat accounts. It’s important to understand what these terms signify and the difference between NSDL and CDSL. ‘CDSL’ is short for ‘Central Depository Securities Limited’ while ‘NSDL’ is short for ‘National Securities Depository Limited.’ Both CDSL and NSDL are depositories registered by the Indian government to hold multiple forms of securities like stocks, bonds, ETFs, and more as electronic copies.
Function of NSDL and CDSL
Both CDSL and NSDL function as depositories. This means they are administrative bodies holding securities, financial instruments, and stocks of investment in a dematerialized or electronic form. Through the means of their DP or depository participant, an investor can place a request to either depository. In general, both CDSL and NSDL work like banks for investors. They hold for assets like bonds, shares, financial instruments, and more, rather than money. This allows for ownership of these stocks, bonds and other debentures to be seen in a convenient electronic form.
Financial instruments being handled in their physical form posed many risks. Both NSDL and CDSL provide investors with electronic systems of storing their market acquisitions, akin to a bank for storing money. This has helped to eliminate most of the risks and inconveniences involved in the handling of and transfer of physical share certificates of the past. Furthermore, depository services like that of CDSL and NSDL have helped to reduce the costliness of transactions as well as the processing time for such transactions. Trading becoming electronic has helped create a boom in the world of investing.
Difference between NSDL and CDSL
Although they are vastly similar, here are some points of difference between NSDL and CDSL.
– The biggest difference between NSDL and CDSL is that National Securities Depository Limited works to keep electronic copies of stocks, ETFs, bonds, etc, traded on the National Stock Exchange. Alternatively, the Central Depository Securities Limited works to keep electronic copies of stocks, ETFs, bonds, etc, traded on the Bombay Stock Exchange. Hence, NSE is where the National Securities Depository Limited operates while BSE is where the Central Depository Securities Limited operates.
– Additionally, the National Securities Depository Limited was established as India’s very first electronic depository incorporated in 1996. It is slightly older than the Central Depository Securities Limited which was the second official depository established in India for investors. CDSL was established in 1999.
– NSDL is promoted by the ‘National Stock Exchange’ of India. The National Securities Depository Limited is also promoted by India’s premier banks and financial institutions like the Industrial Development Bank of India and Unit Trusts of India. Alternatively, the Bombay Stock Exchange and the State Bank of India promotes the Central Depository Securities Limited. Other premiere banks and financial institutions also promote the CDSl such as HDFC Bank, Bank of Baroda, Bank of India, and Standard Chartered Bank, to name a few notable institutions.
– In terms of active users, the latest data suggests that as of March 2018, March 2018, Central Depository Securities Limited had 1.1 crore active accounts while National Securities Depository Limited had about 1.5 Crore active accounts.
NSDL or CDSL: Which is Better?
As detailed above, besides where they operate, there is not much difference between CDSL and NSDL. Both depositories are registered by the Indian Government, regulated by the Securities and Exchange Board of India, and offer pretty much identical services to investors holding electronic copies of their stocks. From the point of view of an investor, these services are interchangeable. Which is better, hence, is a question of which stock exchange one primarily looks at for their trading.
Ultimately, this question of which depository is better is also somewhat futile. An investor has no say regarding which depository they may want to open their Demat account with. The investor’s brokerage or their depository participants determine this decision. By comparing which depository will be more conveniently accessible and economical to open a Demat account with, the depository participant or broker will pick between NSDL or CDSL. On behalf of their customers, the brokers can credit or debit securities from either of these depositories, providing they hold valid power vested to them by an attorney permitting them to do so.