Difference Between CDSL and NSDL

Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) are both government registered share depositories in India.

Share depositories hold shares in an electronic form. In earlier days where share trading was available only in offline modes, shares were held in the form of physical paper certificates.

The features of NSDL and CDSL is that CDSL and NSDL are to Shares what Banks are to Cash and Fixed Deposits. Banks help you to keep your cash in electronic form as opposed to physical cash in your almirahs and share depositories help you in storing shares in a dematerialised form.

What is NSDL?

The primary securities repository in India is called NSDL, or National Securities depository Limited. To make keeping and trading of assets in electronic form easier, it was founded in 1996. In the Indian securities market, NSDL offers depository services to investors, issuers, and intermediaries.

Dematerialization of securities, which is the process of converting physical securities into electronic form, and rematerialization, which is the process of changing electronic securities back into physical forms, are services that NSDL provides.

Additionally, it offers capabilities for corporate activities like dividends and bonuses, pledge and hypothecation of securities, and electronic settlement of securities trades.

The Securities and Exchange Board of India (SEBI) oversees NSDL, which has its main office in Mumbai. 

What is CDSL?

The Central Depository Services Limited, or CDSL, is an Indian central securities depository. To provide depository services to the Indian securities market, it was founded in 1999.

Dematerialization of securities—converting physical securities into electronic form—and dematerialization—converting electronic securities back into physical form—are services that CDSL provides.

The Securities and Exchange Board of India (SEBI) oversees CDSL.

Difference Between NSDL and CDSL

Although there are not numerous differences between the features of NSDL and CDSL, here is a table that highlights the primary distinctions between NSDL and CDSL-

NSDL and CDSL difference lies in the following points-

• Stock Exchange: CDSL works for BSE and NSDL works for NSE however the stock exchanges can use either of the two depositories for trading and settlement of securities.
  
  
• Promoters: Another difference between the two are their promoters. NSDL is promoted by IDBI Bank Ltd., Unit trust of India and NSE. CDSL is promoted only by BSE as on December 2019.
  
  
• Establishment years: CDSL was established in 1999 and NSDL was established in 1996.
  
  
• Demat account number format: There is a difference between CDSL and NSDL demat account number. Demat accounts held with CDSL have 16 numeric digits in them and NSDL demat accounts have two alpha numeric digits- ‘IN’ and 14 numeric digits.

• Number of depository participants registered: CDSL has 599 DPs registered with itself and NSDL has 278 DPs registered on its system. This is according to the latest numbers.

How Do Depositories Work?

The key to trading in stocks and the most basic requirement is to open a demat account. What a demat account does is closely related to what a depository does.

When you buy shares, they are credited to your demat account and when you sell the shares they are debited from your demat account. So where does a depository account come into the picture? The demat account is just an intermediary and it is actually CDSL and NSDL which hold your shares.

So when you open a demat account to buy shares, the shares are held by the depositories.

Another important function that depositories perform is when companies have to distribute dividends to its shareholders.

Companies will need information on its shareholders and share depositories come in handy. Earlier when you bought shares from someone else or sold your shares to someone you had to transfer share certificates. Now, it is just a mere account transfer between two demat accounts.

Services Offered

If you see, the NSDL and CDSL difference lies only in their names, promoters and account number formats. The essence of both the depositories are the same. They offer similar services, they work the same way and their strategy is the same.

As an investor you can avail the services of CDSL and NSDL through a depository participant. A DP could be a financial institution, a broker, a custodian or a bank. You can open a demat account with any DP.

The depository participant is required to provide all the shareholders with a statement of account of all the securities held and traded at the depositories.

Which is Better CDSL or NSDL?

To be able to decide which is better, both the depositories should have contrasting differences between them that could place one depository at a higher rank than the other; and this is certainly not the case with CDSL and NSDL. They are on the same boat.

It is definitely not difficult to come to the conclusion that CDSL and NSDL do not have any material differences from each other. Their functioning strategy and services provided are the same and are governed by Sebi. The difference between CDSL and NSDL demat account number, their promoters, establishment years are few of the differences that they have.

You may think which is better: CDSL or NSDL. There is no answer to this question. Your DP picks a depository and there is no affirmative answer on why they have chosen to do that and do they see anything better in their chosen depository.

There might be a difference in the charges that these depositories levy on the depository participants. You cannot pick between CDSL and NSDL. It is your depository participant who chooses to do that. Bigger depository participants like State Bank of India and many others are registered with both: CDSL and NSDL.

Your investment decisions, the performance of your portfolio and your returns have nothing to do with which depository is your DP associated with. Nevertheless it is good to have a holistic picture of how stock market investments work.