What is depository and the Roles of CDSL and NSDL

29 Oct 2020  Read 2973 Views

We all, as individuals, deposit cash in banks, and enjoy the benefits of interest. These benefits are looked after by banks. In the same way, trading is something that has evolved; from physically buying certificates to now exchanging in a click, digitally.

The majority of the world today indulges in trading and enjoys its benefits. And the enthusiasm and addiction to this market are monitored by depositories.

As investors, we are profound with the concept of trading securities. These securities are safeguarded at a particular place. This place is known as 'depository'. A depository can be a bank or a Demat account. There are two main types of depositories CDSL and NSDL.

But first, let’s understand what depositories are and how they function.

If you want to jump on to any particular section of this blog, please refer to the Table of Contents and select the topic you want to directly read about. 

Table of Contents-

 What are Depositories?

 What are CDSL and NSDL?

 Differences between CDSL and NSDL

 How do these Depositories work?

 What do these depositories offer?

 Final Words

What are Depositories?

The term depository alludes to a facility where something is kept for storage or safeguarding. It is an organization that acknowledges money deposits from clients, for example, a bank or saving associations. A depository can be an association, bank, or establishment that holds securities and aids the exchanging of securities.

A depository gives security and liquidity in the market, utilizes cash deposited for safekeeping to lend to other people, invest in different securities, and offers a funds transfer structure. A depository must return the deposit in the same condition upon request.

They are structures, workplaces, and distribution centers that permit purchasers and organizations to deposit cash, securities, and other important assets for care. Depositories may incorporate banks, safehouses, vaults, financial institutions, and different associations.

In easier words, a depository is an entity that causes an investor to purchase or sell securities, for example, stocks and bonds in a paperless way. Securities in depository accounts are like cash in a bank account.

A depository offers financial assistance to personal and business clients. Deposits in an institution include securities, for example, stocks or bonds. The establishment holds the securities in an electronic form as book-entry, or dematerialized or paper form, for example, a physical certificate. Organizations become members of depositories and keep electronic records of all their issued equity and debt securities with the depositories.

The Securities and Exchange Board of India (SEBI) is in authority for the registration, control, and examination of the depository. A depository participant is also liable to SEBI. It can be effective and functioning only after registration with SEBI post recommendation by NSDL or CDSL.

What are CDSL and NSDL?

To comprehend what a depository is; lets us compare securities to cash. The depositories are to securities what banks are to cash. Much the same as a bank holds your money and permits you to get to it through an electronic form, the depository holds our share, bonds, mutual funds, and so forth for all shareholders in electronic form. These entities have played a critical part in the digitalization of the Indian Stock Markets.

NSDL is short for ‘National Securities Depository’, whereas CDSL stands for ‘Central Depository Securities’ Limited. They are national share depositories fused by the market sectors controller Securities and Exchange Board of India (SEBI). They hold your shares, debentures, mutual funds, etc. Every one of the depositories is connected to one stock trade.

We have two traders in the nation that direct stock exchanging: National Stock Exchange and Bombay Stock Exchange (NSE and BSE). NSDL works for NSE and CDSL works for BSE. CDSL was set up in 1999 and NSDL was set up in 1996.

Before moving ahead, click here to understand what BSE and NSE are and what is their actual purpose.

Differences between CDSL and NSDL

  • Stock Exchange: CDSL works for BSE and NSDL works for NSE; the trades can utilize both of the depositories for exchanging and settlement of securities.
  • Promoters: Another contrast between the two is their promoters. NSDL is backed by IDBI Bank Ltd., the Unit trust of India, and NSE. CDSL is promoted simply by BSE as of December 2019.
  • Establishment year: NSDL was established in 1996 and CDSL was established in 1999.
  • Demat Account number format: There is a distinction between CDSL and NSDL Demat account number. Demat accounts held with CDSL have 16 numeric digits in them and NSDL Demat accounts have two alphanumeric digits-'IN' and 14 numeric digits.
  • Several depositories: CDSL has 599 depository participants registered with itself and NSDL has 278 depository participants registered on its system. This is according to the latest numbers.

How do these Depositories work?

The key to exchanging stocks and the most necessary step is to open a Demat account. What a Demat account does is strongly related to what a depository does. At the point when you purchase shares, they are credited to your Demat account and when you sell the offers, they are debited from your Demat account.

So, where does a depository account come into the picture?

A Demat account is only a middle person and it is CDSL and NSDL which actually hold your shares. So, when you open a Demat account to purchase shares, the shares are held by the depositories.

Another significant function that depositories perform is when organizations need to appropriate dividends to their shareholders. Organizations will require data on its investors and this is when the share depositories prove to be useful.

Earlier, before depositories, when you purchased shares from another person or sold to somebody, you needed to move share certificates. Presently, it is only a simple record move between two Demat accounts.

What do these depositories offer?

Depositories offer the following services:

  • Maintenance of Demat accounts.
  • Dematerialization and dematerialization.
  • Trade settlement.
  • Liquidity to markets.
  • Share transfers.
  • Market and off-market transfers.
  • Eliminate the risk of holding a physical asset.
  • Provide safekeeping.
  • Nomination/transmission.

Final words

It is very clear that CDSL and NSDL don't have any material contrasts from one another. Their working techniques and services given are equivalent and are governed by SEBI. The distinction between CDSL and NSDL Demat account number, their promoters, establishment years are some of the distinctions that they have.

The CDSL and NSDL have been essential in supporting the structure as well as improving its production post digitalization. It is likewise significant to take note that since the time of their existence, there have never been significant glitches, a demonstration of the effective change from physical to electronic format in the Indian share trading market.

About the Author: Ishita Jha | 23 Post(s)

Ishita Jha is an MBA Finance student of BIMTECH, now a blogger; trying to survive the pandemic recruitments. She can be found researching, exercising, and binging to balance life. She finds her happy place in writing.

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