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. 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 are CDSL and NSDL?
CDSL and NSDL are national share depositories incorporated by the markets regulator Securities and Exchange Board of India (Sebi). They hold your shares, debentures, mutual funds stc. Each of the depositories is linked to one stock exchange.
We have two exchanges in the country that conduct stock trading: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). NSDL is the depository for NSE and CDSL is BSE’s depository. CDSL was established in 1999 and NSDL was established in 1996.
What is the difference?
NSDL and CDSL difference lies in the following points:
- Stock Exchange: CDSL works for BSE and NSDL works for NSE however the 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.
Difference between CDSL and NSDL
|1.||Abbreviation||National Securities Depository Ltd.||Central Depositories Services Ltd.|
|2.||Stock exchange||National Stock Exchange||Bombay Stock Exchange|
|4.||Number of depository participants registered||278**||599*|
|5.||Investor Accounts||1.95 crore**||2.11 crore*|
|6.||Demat account number format||16-digit alpha numeric number. Account number begins with ‘IN’ followed by 14 numeric digits||16-digit demat account number|
|**- As on February 29, 2020 *- As on March 31, 2020|
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.
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.
|List of services provided by CDSL and NSDL|
Conclusion: 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.