Difference between NSDL and CDSL

In the world of stock market investing, the role of depositories cannot be overstated. Depositories provide a secure and efficient platform for holding securities in electronic form, simplifying the process of buying, selling, and transferring securities. In India, two prominent depositories, the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL), play a vital role in facilitating seamless transactions for investors. 

While both NSDL and CDSL serve the same purpose, they differ in various aspects, including their establishment, services offered, market share, and more. In this blog post, we will delve into the nuances that set NSDL and CDSL apart, shedding light on their similarities and differences to help investors better understand these essential entities in the Indian stock market.

NSDL and CDSL are the two most popular depository institutions in India. Their primary function is to store the dematerialised shares and bonds purchased by investors through stock exchanges like BSE and NSE. All stock and bond market investors need two types of accounts to buy shares and bonds - a Demat account with NSDL or CDSL and a trading account with a registered Depository Participant (DP) like 5Paisa.

The following sections elaborate on the top differences between NSDL and CDSL. 

What is NSDL?

NSDL, the National Securities Depository Limited, is a leading depository institution in India established in 1996. It offers electronic holding and settlement services for securities, allowing investors to hold their shares, bonds, and mutual fund units in dematerialized form. NSDL facilitates the conversion of physical securities into electronic format, enables the electronic transfer of securities, and provides additional services like e-voting and electronic access to information. 

What is CDSL?

CDSL, or Central Depository Services Limited, is a prominent depository institution in India. Established in 1999, CDSL offers electronic holding and settlement services for securities, serving as a repository for investors to hold their shares, bonds, debentures, and mutual fund units in dematerialized form. Similar to NSDL, CDSL facilitates the conversion of physical securities into electronic format and enables the electronic transfer of securities.

NSDL Vs CDSL - A Primer

NSDL or National Securities Depository Limited was established in 1996 to maintain the shares held by investors in dematerialised form. It is presently one of the largest depository institutions in the world, managing more than 2.5 crore investor accounts through 36,184 DP service centres across India. As of December 31, 2021, it manages assets of over US$4050 billion. 

CDSL or Central Depository Services (India) Limited was established in 1999 and is the second depository institution in India. CDSL is a Market Infrastructure Institution (MII) and acts as the intermediary between exchanges, clearinghouses, DPs, issuers, and investors. It facilitates the safe storage of securities held by investors in dematerialised form and enables the smooth processing of securities purchases and sales. As of December 31, 2021, CDSL manages over 5.55 crore investor accounts and offers its services through 592 DPs. The securities held in CDSL’s custody value exceeds INR 3.69 crore.

Now that you know the scope of NSDL and CDSL, let us understand the top differences between NSDL and CDSL in the following section. 

Difference Between NSDL and CDSL

1. Partner Stock Exchange

NSDL: The National Securities Depository Limited (NSDL) has a close association with the National Stock Exchange (NSE). NSDL was promoted by institutions such as the Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), and the NSE itself. NSDL's strong partnership with the NSE has helped it gain a significant market share and establish a robust presence in the Indian securities market.
CDSL: On the other hand, Central Depository Services Limited (CDSL) has a partnership with the Bombay Stock Exchange (BSE). CDSL was promoted by the BSE and leading banks in India. This association has enabled CDSL to strengthen its position and establish itself as a prominent depository in the Indian stock market.

2. Status

NSDL: The National Securities Depository Limited (NSDL) is the largest and the first depository established in India. It holds a significant market share and is considered a pioneer in the Indian depository system. NSDL has played a crucial role in transforming the Indian capital market by introducing electronic holding and settlement of securities.
CDSL: The Central Depository Services Limited (CDSL) is also a prominent depository in India, but it holds a smaller market share compared to NSDL. Nevertheless, CDSL has grown steadily over the years and has established itself as a reliable depository for investors. It offers a range of services and has a wide network of participants in the Indian securities market.

3. Shareholders

NSDL: The National Securities Depository Limited (NSDL) was established in 1996 and is backed by several prominent institutions in India. Its major shareholders include the Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), and the National Stock Exchange (NSE). 
CDSL: The Central Depository Services Limited (CDSL) was established in 1999 and has a different set of shareholders. CDSL's major shareholder is the Bombay Stock Exchange (BSE), which is one of the largest stock exchanges in India. Additionally, leading banks in India, including the State Bank of India (SBI), Bank of India (BOI), and HDFC Bank, are also shareholders in CDSL. 

4. Investor Accounts

NSDL: The National Securities Depository Limited (NSDL) is the larger depository in terms of investor accounts. As of the latest available data, NSDL has a substantial market share, with over 2.2 crores (22 million) investor accounts. The wide reach and popularity of NSDL among investors can be attributed to its early establishment and strong partnerships with major financial institutions.
CDSL: The Central Depository Services Limited (CDSL) has also witnessed significant growth in investor accounts over the years. As of the latest available data, CDSL has over 1.5 crores (15 million) of investor accounts. While CDSL has a smaller market share compared to NSDL, it has managed to establish a strong presence in the Indian securities market and continues to attract investors.

CDSL Vs NSDL - Which is Better?

Determining which depository, CDSL or NSDL, is better depends on various factors and the specific requirements of an investor. Both depositories have their strengths and offer reliable services in the Indian securities market. NSDL holds a larger market share and offers a wider range of services, including e-voting and electronic pledges of securities. 

To make a decision, investors should consider factors such as the reputation of the depository participant (DP) they plan to work with, the services they specifically require, and their comfort level with the associated stock exchange (NSE or BSE). Additionally, investors can research and compare the charges, customer service, and user experience provided by both depositories. 

Features - NSDL - CSDL

NSDL and CDSL offer a range of features and services to investors in the Indian securities market.

NSDL:

1.    Dematerialization: NSDL enables the conversion of physical securities into electronic form, eliminating the need for physical certificates and enhancing convenience and security.
2.    Electronic Transfer: NSDL facilitates the seamless electronic transfer of securities, allowing investors to buy, sell, and transfer holdings efficiently.
3.    E-Voting: NSDL provides e-voting services, allowing shareholders to cast their votes electronically during company meetings, ensuring transparency and convenience.
4.    Electronic Access to Information: NSDL offers electronic access to corporate actions, announcements, and other market-related information, providing investors with timely and convenient access to crucial information.
5.    Electronic Pledge and Hypothecation: NSDL allows investors to electronically pledge and hypothecate securities as collateral for loans and other transactions.

CDSL:

1.    Dematerialization: CDSL provides dematerialization services, enabling investors to hold securities in electronic form, eliminating the need for physical certificates.
2.    Electronic Transfer: CDSL facilitates the electronic transfer of securities, enabling quick and efficient transactions.
3.    Easi (Electronic Access to Securities Information): CDSL's Easi platform provides investors with online access to their demat account holdings, transaction statements, and other information.
4.    E-Locker Facility: CDSL offers an e-locker facility, allowing investors to store important documents in electronic format securely.
5.    Pledge and Hypothecation Services: CDSL enables investors to pledge and hypothecate securities electronically as collateral for various financial transactions.
 

How do depositories work?

Depositories play a crucial role in the functioning of securities markets. They operate as centralized institutions that hold securities in electronic form on behalf of investors. When an investor buys securities, the depository credits their demat account with the respective securities. 
Similarly, when securities are sold, the depository debits the seller's demat account and credits the buyer's account. Depositories ensure secure storage, transfer, and settlement of securities, eliminating the need for physical certificates. 
They collaborate with various intermediaries such as stock exchanges, brokers, and depository participants to facilitate smooth transactions and maintain accurate records of ownership, making trading in the securities market more efficient and convenient.
 

NSDL Vs CDSL - The Conclusion

In conclusion, both NSDL and CDSL are prominent depository institutions in India, serving the purpose of holding securities in electronic form and facilitating seamless transactions for investors. 

NSDL, the larger depository with a wider range of services, holds a dominant market share and strongly associates with the National Stock Exchange. On the other hand, CDSL has shown steady growth and has a partnership with the Bombay Stock Exchange. 

The choice between NSDL and CDSL depends on factors such as investor preference, the services required, and the associated depository participant. Investors should assess their specific needs and make a decision based on their individual requirements.

Registration of DPs with NSDL and CDSL

A stockbroking firm typically chooses between the two securities depositories in India, NSDL and CDSL, based on factors such as fees and charges, the range of services offered, and the overall ease of conducting business. As an investor, you can inquire with your DP to find out if they are registered with NSDL or CDSL. Additionally, some brokers are registered with both NSDL and CDSL.

Services Offered by CDSL and NSDL

NSDL and CDSL are India's two primary depositories, offering a variety of services to help with the efficient and secure handling of securities. Services like dematerialization and rematerialization of securities are provided by both CDSL and NSDL, allowing certificates to be converted from physical to electronic form and vice versa. In order to guarantee smooth and safe transactions, they also oversee the transfer and settlement of securities. 

These depositories also offer services including securities pledge and hypothecation, investor account management, and electronic credit of securities awarded in initial public offerings. Moreover, business operations including stock splits, interest payments, and dividend distributions are supported by CDSL and NSDL. 

By providing complete solutions to investors through their vast network of depository participants, CDSL and NSDL improve the overall efficiency, transparency, and security of the Indian securities market. Their function is essential to preserving investor trust and promoting the expansion and stability of India's financial system.