Earlier, the shares and bonds were issued in the physical certificates by the companies. The investors were required to keep the certificates safe and transfer or provide it to the buyers of the shares. This process was really time-consuming and also resulted in the issues fake certificates, theft, and bad deliveries. These issues called for the improvement in the technology and hence led to the rise of the depositories. A depository is basically an institution that helps the investors to engage in the activity of buying and selling of shares electronically i.e. in a paperless manner. At present, there are two main depositories in India, which are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). If you are wondering what are they? Which one is better? So, let’s jump into the topic.
What is National Securities Depository Limited (NSDL)?
NSDL was the first depository in India that was incorporated in November 1996. It is based in Mumbai, Maharashtra. It is also one of the first depositories of India that offered the facility of trading and settling the shares in an electronic or Demat form. It is promoted by the Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), State Bank of India (SBI) and National Stock Exchange of India (NSE). Some of the prominent services provided by NSDL are as follows:
- Settlement of trade
- Facilitating in the off-market transfer of shares
- Inter-Depository transfers
- Pledging of shares
What is Central Depository Services Limited (CDSL)?
CDSL began operations in February 1999 and based in Mumbai, Maharashtra. It is promoted by the Bombay Stock Exchange (BSE), State Bank of India (SBI), Union Bank of India, Bank of Baroda (BOB), Bank of India, The Housing Development Finance Corporation (HDFC) and Standard Chartered Bank. The different functions performed by CDSL are as follows:
- Maintenance of securities in an electronic format
- Dematerialization of securities
- Trade settlement
- Freezing investor accounts
- Pledging of shares
NSDL and CDSL – Which one is better?
The key point of difference between NSDL and CDSL is as follows:
Abbreviation: NDSL stands for National Securities Depository Limited and CDSL is known as the Central Depository Securities Limited.
Founded: NSDL was founded in the year 1996, whereas CDSL was founded in the year 1999.
Operating Market: NSDL operates for National Stock Exchange (NSE); on the other hand, CDSL operates for Bombay Stock Exchange (BSE).
Promoters: NSDL is promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), State Bank of India (SBI) and CDSL is promoted by Union Bank of India, Bank of Baroda (BOB), Bank of India, The Housing Development Finance Corporation (HDFC) and Standard Chartered Bank.
From the above table, one thing is pretty much clear that there is not much difference between the NSDL and CDSL. Both of them are regularized by the Securities and Exchange Board of India (SEBI) and offer similar facilities to the investors.
Storing of securities in the depository system is nothing less than a blessing in disguise for the investors as it helps them to get rid of the risks associated with the physical share certificates. The best thing is that the transaction cost to operate the depository account is much lower when compared with the physical certificates. Hence, it is quite irrelevant to compare these two depositories and if we look in the broader term, then the role they are playing in helping the people move away from the physical share certificates to the Demat form is important.