What is Depository -Know the Roles of CDSL and NSDL

People who have interested in investment terms often heard about the term “depository” many times. A Depository is an entity that helps investors to store all their financial securities like stocks, bonds, mutual funds, certificates of deposit, etc in electronic form. This will help the investors to trade their securities via digital version.  Depositories also provide security and liquidity in the exchange market.

Earlier, securities were issued in physical form and maintained a manual record-keeping system. Later the situation changed after the introduction of depositories. In India, the concept of depository was introduced after the large-scale irregularities reported in security exchange in 1992. The establishment of the Depositories in capital markets brought a new change to the stock market.

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What is a depository?

In brief, it is an organization, bank, or other institution where the securities of shareholders are held in the form of electronic or Demat format. It will eliminate the risk of the physical handling of financial securities. Here, institutions will interact with their clients through the support of the Depository Participants (DPs). They are also called stockbrokers.

Features of depository

• It connects the link between public companies and shareholders.
• Avoid physical transfer of securities and funds.
• Digital recording of securities helps to reduce the risk of fraud activities.
• Allows the provision of loans or mortgages.

Role of depository participants

• Depository Participants/DP will play a vital role to help an investor to open an account with the depository.
• He/she is act as a registered agent or stockbroker.
• DPs are responsible to maintain the investors’ accounts for financial securities.

Role of CDSL and NSDL

CDSL and NSDL are the two depositories in India, which help investors or shareholders to store their shares in electronic form. They are incorporated by the markets regulator Securities of Exchange Board of India(SEBI). Just like a bank, the depositories will take care of shares, bonds, and mutual funds of investors.

Depositories are linked to stock exchange activities. There are two exchanges in India to conduct stock trading:-National Stock Exchange(NSE) and the Bombay  Stock Exchange(BSE).NSDL is the depository of NSE and CDSL is of BSE.

Central Depository Services Limited or CDSL

• Central Depository Services Limited or CDSL, is the second largest central depository of securities in India.
• Founded in 1999, the headquarters of the CDSL is located in Mumbai.
• It holds various securities like shares, debentures, government securities, commercial papers, bonds, mutual funds, etc in demat account format.
• Under CDSL the trade activities and settlement of securities are to be processed by book entry.
• It focuses to provide secure and authentic depository services.
• Working under the Bombay Stock Exchange (BSE), CDSL is promoted by the SBI, Bank of Baroda, Union Bank of India, HDFC Bank,Axis Bank and Standard Chartered Bank.
• A total of 581 depository participants and 161 branches come under CDSL.
• Share price of Central Depository Services (India) was Rs 1,248.50 as on Sept,2022.

National Securities Depository Limited or NSDL

• NSDL is India’s first and biggest depository, established in the Year 1996, and is located in Mumbai.
• NDSL was the country’s first national electronic depository.
• It provides services for the Bombay Stock Exchange and is promoted by the Industrial Development Bank of India(IDBI) Unit Trust of India (UTI), the and National Stock Exchange (NSE).
• NSDL is responsible for holding securities of shareholders or investors in the form of Demat accounts, which are electronic.
• It saves a lot of time and reduces the risk of cheating and fraudulent activities.
• NSDL mainly provides services to investors, custodians, stock brokers, etc.

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Difference between CDSL and NSDL

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