What is NSDL and how does it work?

What is NSDL and how does it work?

What is NSDL?

NSDL (National Securities Depository Limited) is the pioneer depository in India. Now, a depository is a central agency that helps investors store their shares and other securities in electronic format. Investors do not directly open Demat accounts with NSDL, but it is normally done through depository participants (DP) authorised by NSDL to operate on their behalf. In India, it was NSDL that ushered in the era of electronic holding, transfer, and clearing of securities compared to physical settlements.

NSDL pioneered electronic custody, electronic clearing and settlement, electronic ownership as well as electronic treatment of corporate actions in India. While NSDL was set up in 1996, CDSL was set up 3 years later in 1999. Today, out of the 10.50 crore Demat accounts in India, CDSL has around 3.50 lakh Demat accounts while CDSL has about 7 lakh Demat accounts. However, in terms of assets under custody, the AUC of NSDL is nearly 10 times that of CDSL, due to their predominant institutional membership.

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Table of Content

  1. What is NSDL?
  2. Role of NSDL in Indian capital markets 
  3. Understanding how NSDL operates in India
  4. Advantages of holding NSDL Demat account
  5. Key services provided by NSDL

Role of NSDL in Indian capital markets 

If you have a Demat account and trade in stocks, there is already a relationship with NSDL or with CDSL. So, what is NSDL? It is the first of the two central depositories to be formed in India and virtually ushered in electronic custody. We also understand some nuances like what DP ID is in NSDL and what is an NSDL account. Apart from understanding the NSDL definition, this segment will also dwell on the core objective of NSDL and the role it plays in capital markets. Additionally, there will also be dedicated sections on the features of NSDL and the benefits of NSDL trading.

Understanding how NSDL operates in India

National Security Depository Limited (NSDL) functions similarly to a bank. Just as a bank holds cash in custody, the NSDL holds securities in custody. Just as the apex bank operates through a network of branches, the NSDL operates through the depository participants (DP). It also facilitates electronic transfer and clearing of securities. Investors can hold equity and debt instruments like bonds, gold bonds, ETFs, gold ETFs, and even mutual funds in a Demat account as long as they can be identified with a unique ISIN number. So after knowing what is NSDL & its roles let's know the advantages of the NSDL Demat account

Advantages of holding NSDL Demat account

Here are some key benefits of holding an NSDL Demat account.

  1. NSDL eliminates bad deliveries since they are in electronic standardised mode.
  2. NSDL eliminates the risks with risks of physical certificates like theft, defacement, loss, etc.
  3. The cost is reduced due to the elimination of Stamp Duty. Stamp duty is not applicable in electronic transfer, which reduces the cost of transactions via NSDL.
  4. Transfer and registration of ownership are immediate and seamless in the NSDL depository.
  5. Corporate action adjustments automatically reflect in a Demat account or bank account.
  6. Changes in details like phone number, address, and email ID are all centralised and handled by a single point of access.

Key services provided by NSDL

Broadly, the NSDL provides basic services, CAS services, and value-added services. Let us look at each of these sub-heads in detail:

  1. Basic Services
  2. CAS (Consolidated Account Statement)
  3. Value Added Services

1. Basic Services:  Basic services provided by NSDL facilitate investors' participation in the capital markets via electronic custody. This includes account maintenance, Dematerialization of physical certificates, electronic settlement and clearing of trades, off-market transfers, distribution of non-cash corporate actions, transmission of securities, nomination facility, etc.

2. CAS (Consolidated Account Statement) services:  It is an offering of a single statement consisting of all investments made by single holders or joint holders in the security market. This enables electronic access to a single account. You get a consolidated picture of all financial asset holdings including equity shares, debentures, gold bonds, electronic G-Secs, Mutual funds admitted to Demat, and Treasury bills.

3. Value Added Services (VAS): Finally, NSDL also provides some selected Value Added Services (VAS) to its investors. What does VAS include? We can summarise a few of these value-added services here. For instance, pledge marking, delivery out instructions (in lieu of DIS and POA), facilitating electronic distribution of dividends, lending and borrowing of securities, IPO investment, and SMS alerts. NSDL also empowers brokers to deliver contract notes to custodians and fund managers electronically for institutional trades.

In a nutshell, you can now understand what is NSDL, the NSDL has been at the core of ushering in an electronic depository in India. Combined with electronic transfer, clearing, and settlement, NSDL has surely been a game changer in the Indian securities market. Click here to know about poa in demat account.

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In a nutshell, you can now understand what is NSDL, the NSDL has been at the core of ushering in an electronic depository in India. Combined with electronic transfer, clearing, and settlement, NSDL has surely been a game changer in the Indian securities market. You can also know that the NSDL enables paperless trading, NSDL can enhance liquidity, accelerates trade settlement cycles, and minimises risks involved in transferring securities physically. Today, NSDL is the largest depository in India serving millions of Demat account holders through a network of depository participants and stock brokers.

FAQS on What is NSDL

No, NSDL is not a government company, it is a Non-government company, you can say that it is the Indian central securities depository under the jurisdiction of the Ministry of Finance, Government of India based in Mumbai city.

Yes, NSDL is listed on the stock exchange.

The NSDL charges are Rs.17.50 (INR 13 + 4.50) per sell transaction, per day as DP Charges. Further charges depend on the broker to broker such as AMC, Option trade, etc.

You can say the key difference between the NSDL & CSDL is that the NSDL is the share depository for NSE whereas the CDSL is the share depository for the BSE.

Yes, you can transfer shares from NSDL to CDSL. This can be done by submitting the physical Delivery Instructions split (DIS) or using the online speed-e facility with the help of your stock broker.