What is NSDL and CDSL? What is difference between NSDL & CDSL?

The depository is an organization that holds financial securities with it in Demat form i.e electronic form. The depository is similar to a bank, but while a bank holds your money, they hold stocks, shares, bonds etc. It is responsible for the maintenance of ownership records and facilitation of trading in dematerialized securities. There are only two depositories in India – NSDL, and CDSL. This article is about Why should you know about depository? What is a depository? What are NSDL and CDSL? How do they differ?

Why should you know about depository?

It is good to know but in most cases, one just opens a Demat account and uses it.

One when one has to transfer the Demat account from one broker to another, then one has to answer the question of whether the transfer is inter depository or intra depository.

It is like admin department  in the school, it does background work. One only deals with admin department during school exit when one needs transfer certificate.

What is a depository? What is NSDL or CDSL?

When you open a Demat account and buy any shares and take delivery, your shares are held by a depository.

So when a company needs to know its shareholder details to send dividends, rights, bonuses, or any other notification, it asks for the information from these depositories in India.

A Depository facilitates holding and transacting in securities in the electronic form and facilitates settlement of trades on stock exchanges. These securities include stocks, ETFs(Exchange-traded Funds), debentures, bonds,  units of mutual funds, units of Alternate Investment Funds (AIFs), Certificates of deposit (CDs), commercial papers (CPs), Government Securities (GSecs), and Treasury Bills (T-bills).

It does away with all the risks and hassles normally associated with paperwork

Depository interacts with its clients or investors through its agents, called Depository Participants popularly called DPs or broker. For any investor to avail, the services provided by the Depository have to open a Depository account, known as Demat Account, with any of the DPs.

A DP can be a bank, financial institution, brokerage house, or similar entity. To be eligible, it must be registered with the Securities and Exchange Board of India (SEBI) and comply with its norms and guidelines. The image below shows the interaction between investors(buying/selling stocks), Exchange, Depository and Depository Participant(DP)

You can’t directly choose which depository to open an account. It is the broker or the Depository Participant (DP) who decides which depository to use for example Zerodha is on CDSL while ICICIDirect is on NSDL.

Even you can open an account with two DP’s and you can transfer the share from NSDL to CSDL and vice versa

• National Securities Depository Limited (NSDL) is promoted by the National Stock Exchange(NSE), Industrial Development Bank of India and Unit Trust of India etc. Its website is https://nsdl.co.in/
• Central Depository Services Limited (CDSL) is promoted by the Bombay Stock Exchange(BSE), State Bank of India, Bank of India among others. Its website is https://www.cdslindia.com/ CDSL was listed on 30 June 2017 on the National Stock Exchange (NSE)