CDSL and NSDL Full Form: What is the difference between them?

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full form of cdsl and nsdl

CDSL and NSDL Full Form

CDSL full form is Central Depositories Services India Ltd and NSDL full form is National Securities Depository Ltd. A depository holds financial securities like stocks, ETFs, bonds, mutual funds, etc. in dematerialized form and helps investors to trade securities on stock exchanges. A depository acts as a bridge between the listed companies and shareholders. The listed companies issue shares through agents connected with them called depository participants (DPs). A depository participant can be a financial institution, a broker, a bank, or any entity qualified as per SEBI standards and is accountable for the transfer of shares from the depository to investors. A depository participant is also accountable to the SEBI.

In this article we are going to learn about NSDL and CDSL, their differences, how a Depository works, and Which Depository is better to open a Demat account.

What Are CDSL and NSDL?

As mentioned above, CDSL and NSDL are two national share depositories incorporated by SEBI, the stock market regulatory body in India. NSDL was set up in 1996 and CDSL was set up in 1999. CDSL and NSDL's main objective is to manage investors' shares in electronic form. In the early days, the buying and selling of shares were only available in offline modes and one can hold shares in the form of physical paper certificates. NSDL is one of the largest depository entities in the world. On the contrary, CDSL is the second depository entity in India. It acts as a middle man connecting the exchanges, clearing houses, DP's, investors, and issuers. 

The major two exchanges in India are the National stock exchange (NSE) and Bombay stock exchange (BSE) the depository for NSE is NSDL and the depository for BSE is CDSL. Difference between CDSL and NSDL

The difference between CDSL and NSDL lies below.

  • Stock exchange: Both Depositories (CDSL and NSDL) maintain Demat accounts for investors and one stock exchange can work with each depository. The NSDL holds stocks, ETFs, and bonds traded on NSE. On the other hand, the CDSL also holds the stocks, ETFs, and bonds traded on BSE. 
  • The number of investor accounts: Although NSDL is the oldest depository institution in India, CDSL is more famous among investors. As per recent stats released by NSDL and CDSL, NSDL manages more than 2.5 crore investor accounts whereas CDSL manages more than 5.5 crore investor accounts. And there is a wide difference between the total number of investor accounts opened by both NSDL and CDSL. 
  • Year of establishment - NSDL is the first and oldest depository in India. It was set up in 1996.CDSL is the second depository after NSDL which was established in the year 1999.
  • Promoters - NSDL is promoted by IDBI Bank Ltd, Unit trust of India, and NSE whereas  CDSL is only promoted by BSE. 
  • Stock exchange - CDSL has BSE as its first operating market and NSDL has NSE as its first operating market. 
  • Number of DPs registered: There is a huge difference in the number of DP registered with NSDL and CDSL. 599 DPs are registered with CDSL whereas 278 DPs are registered on NSDL. 

How does a depository work?

Firstly, you need to have a Demat and trading account to trade shares. When you buy shares, you receive shares to your Demat account and when you sell shares, the shares are transferred from your Demat account. Here, the role of the Demat account acts as an agent, and the shares you buy are held in depositories such as NSDL and CDSL and it removes the risk and burden of holding in physical form. 

Investors cannot open a Demat & Trading account directly with NSDL or CDSL. They have to contact a DP (Depository participant) such as a stockbroker or bank who facilitates opening Demat account processes with depositories. Depositories ease the trading process and eliminate paperwork, forgery, and unethical share transfers. 

For instance, you place a buy order to buy 20 shares of a company ABC at Rs. 2000 through your trading platform and after T+2 (Trading day + 2 working days), you receive 20 shares of company the role of a depository is to transfer the share ownership to you and after some days if you intend to sell the shares when the price increases to Rs. 2100. You can place a market order from your trading account to sell these shares. After T+2 days the shares are debited from Demat and the trading account and you receive money in your bank account. 

Understanding depositories and depository participant's work?

  • NSDL and CDSL maintain ownership records of financial securities and are linked with stockbrokers and investors through Depository Participants (DP).
  • A Depository participant acts as an agent between the depository and its clients. As per the provisions of the SEBI act, DPs are registered with Depositories. 
  • Depository participants are stock brokerage firms that offer investors to open Demat and trading accounts, with trading platforms, market reports, and other services. 

Which Depository is preferable to opening a Demat account?

Both the Depositories (NSDL and CDSL) do the same things. Stock brokers that are members of either CDSL or NSDL provide access to Demat accounts to their clients. They both provide the same features and services to the account holder and are government-registered share Depositories in India, regulated by SEBI.

There are a few differences between CDSL and NSDL such as the number of Demat account openings with them, their promoters, and the year of establishment. 

So, the question is which is better? CDSL or NSDL

There is no significant difference between them and there is no logical answer to which one is better. 

Your Depository participant picks a depository and there is no acknowledging answer to why they have chosen a depository over another. There can be differences in charges levied by these depositories on the depository participants but these differences hardly make any difference to their clients. 

To conclude, the question of which depository is better is futile because your return on investment from the stock market and portfolio performance has nothing to do with which depository is your DP linked with.

  • How to find that our Demat account is from CDSL or NSDL?

  • Which is better: NSDL/ CDSL?

  • Can I open an account in both NSDL and CDSL?

  • How can I claim NSDL shares?