Role of CDSL and NSDL and their difference.

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The role of CDSL and NSDL to act as depositories that hold stocks, bonds, debentures, etc. on behalf of investors in a dematerialized form. Depositories played a very vital role in converting physical form share certificate into dematerialized form. 

CDSL full form is Central Depository Services (India) Limited and NSDL full form is National Securities Depositories Limited. CDSL works will BSE and it was established in the year 1999 & NSDL works with NSE and it was established in the year 1996.

1. Role of CDSL and NSDL

These two depositories i.e. CDSL and NSDL, just like a bank account act for cash and fixed deposit, these depositories act for the share certificates and mutual fund units. Before they came into the picture share were traded in a physical format.

In order to buy and sell shares, investors had to move the share certificate in order to complete the transaction. This was completely replaced by these depositories, this company converted physical share certificates into electronic forms.  And NSDL  played a vital role in this move without having glitches.

2. Difference between CDSL AND NSDL

Establishment date

CDSL was established in the year 1999 and NSDL was established 3 years before in the year 1996. The establishment of NSDL was one transforming change in the Indian stock market.

Who works for who?

CDSL works with BSE (full form Bombay stock exchange) & NSDL works with NSE (full form National stock exchange. But a stock exchange can also independently ask for services from any of the depositors. 

Demat number format for CDSL & NSDL

There are differences between Demat account holders of two depositors. The holders of Demat accounts with CDSL will have 16 numerical digits in them. But the account holders with NSDL will have two alphanumerical digits ‘IN’ & 14 numerical digits.

Number of deposit participate.

CDSL has more depository participates than NSDL. CDSL has 599 depositories participates and NSDL has 278 depositories participants. These numbers can change in the future as well.

Role of CDSL and NSDL

3. How do depositories work? 

The depositories work similarly to a bank where the banks keep physical cash in an electronic form in case of depositories it shares bonds debentures etc. 

All the transactions such as purchase and or sale of shares are done in the Demat account so what does a depository actually do. When we buy or sell shares the actual transaction is done by depositories and the Demat account is just like a middle man. 

The records of purchase and sale of shares are recorded with the depository. One more important function performed by CDSL and NSDL is providing the records of their shareholders on a particular date to companies. So that companies can pay out dividends in a proper manner. 

Before depositories came into existence, shares were sold and purchased in physical format on a paper called share certificates. A person who wanted to buy or sell his shares needed to give the same to other people in order to complete his transaction, but now only recorded in two Demat accounts.

Read about related topics: Power of compounding

4. Services offered by CDSL & NSDL

Following are the services provided by CDSL & NSDL

  • Maintaining Demat account
  • Trade settlement
  • Re-dematerialized and dematerialized
  • Market & off-market services
  • Share transfers
  • Account opening
  • Account settlement
  • Changing account details 
  • Distribution of non-cash corporate actions

5. Which is better CDSL and NSDL?

As we have learned throughout his article that both depositories almost perform similar activities. Both the depositories cannot be judge on the quantitative factors.

Also, an investor does not have the option to decide which depository they will deal in, it is at the discretion of their depository participant who can be a bank, a broker, etc. to choose which depository to work with. For Example, Zerodha is the Depository Participant for the depository CDSL. 

To learn more go to finology.com

Which is better CDSL and NSDL?

No one, we have no option to decide which depository we will deal with, it is at the discretion of the depository participate. For Eg:- Zerodha works with BSE.

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