With the advent of technology and digitalization, investing in shares has become more accessible and more convenient. You no more have to jostle with the crowd to place your orders at the exchanges and face the hassles of storing physical share certificates. You can simply open a Demat account and place buy/sell orders for stocks online through the trading platform of your stockbroker.
However, the stockbroker with which you have opened your Demat account is only an intermediary. The Demat accounts in India are typically managed by two central depositories – the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL).
By reading this article, you will understand the differences between the two depositories - NSDL and CDSL. But before that, let’s discuss what is a depository and a depository participant.
A depository is an institution that holds and manages shares and other securities electronically on behalf of investors. This is done through a Demat account. A depository participant is a stockbroker that acts as an intermediary between investors and the depository.
So, if you want to open a Demat account to invest in stocks and other financial securities, you must approach a depository participant. This depository participant, in turn, collects your required details, including your PAN number, name, address, etc., before approaching a depository to open a Demat account in your name.
A depository participant can be a bank, a non-banking financial corporation, or a stockbroker registered with the Securities and Exchange Board of India (SEBI). While you can choose your depository participant, the depository is generally chosen by default.
The NSDL and CDSL are the two depositories authorized to open and maintain Demat accounts in India. Both these depositories are regulated by the SEBI. They are responsible for safekeeping financial securities on investors’ behalf, executing the transfer of securities from one Demat account into another, and facilitating the dematerialisation and rematerialization of shares.
Although their roles are more or less the same, a few differences exist between the NSDL and the CDSL. They are as follows:
The first point of difference between NSDL and CDSL is based on the years in which they were established. NSDL is the older of the two, as it was established by the Government of India in 1996 to facilitate dematerialization of shares in the country. On the other hand, CDSL was established three years later, in 1999.
Another difference between the NSDL and the CDSL is based on the markets or exchanges in which they operate. While NSDL primarily operates in the National Stock Exchange or NSE, CDSL primarily operates in the Bombay Stock Exchange or BSE.
The promoters of the NSDL and the CDSL are also different. NSDL is being promoted by the National Stock Exchange (NSE), Unit Trust of India (UTI), and IDBI Bank Limited. On the other hand, the CDSL is being promoted only by the Bombay Stock Exchange (BSE).
When you open a Demat account with a depository, you are allotted a Demat account number. The format of your Demat account number depends on the depository. Demat accounts held by the CDSL have 16-digit numeric account numbers. The Demat accounts held by the NSDL have 14-digit numeric account numbers with two alpha prefixes, “IN”.
Although the NSDL is the older of the two, it has around 289 registered depository participants. On the other hand, the CDSL has around 585 depository participants registered on its system.
The number of Demat accounts managed by the NSDL and the CDSL are different from each other. As of 31 January 2023, CDSL managed around 7.96 crore Demat accounts, whereas the NSDL managed around 3.07 crore Demat accounts.
There is no significant difference between the NSDL and the CDSL regarding service and functionality. The SEBI regulates both and offers similar services. The option of choosing a depository to open a Demat account rests with the depository participant. You can even choose to open separate Demat accounts with both depositories.
To open a Demat account for free, you can turn to Motilal Oswal. Apart from the free Demat account, you can enjoy a host of attractive features that can make your share trading journey smooth and convenient.