Advancements in technology have altered the way in which we invest and trade in the stock market today. In order to understand how depositories work and how they have rendered the need for ownership of physical certificates of stock irrelevant, read on.
- What is a Depository?
Depositories refer to organizations including but not limited to banks as well as other institutions that are tasked with looking after securities and allowing for their trade to occur. Acting out dual functions of securing and aiding liquidity, they make use of the money deposited to them to allocate to others as loans. Additionally, the organization or bank itself invests in securities and provides users with a system to transfer funds. Should an individual want the deposit they placed in the depository to be returned, it is required to be done in the same fashion.
- What are the NSDL and CDSL?
Depositories are often known more familiarly as Demat accounts which may exist as a CDSL or as an NSDL. In order to understand the difference between CDSL and NSDL, it is important to first understand what they each stand for. The former refers to Central Depository Securities Limited while the latter refers to National Securities Depository Limited. Each of these has been put in place by the Securities and Exchange Board of India (or SEBI). Free Demat accounts can be made online with ease.
- Differences between the CDSL and NSDL –
The following factors differentiate the CDSL and NSDL.
Stock Exchange of Operation – CDSL operates under the Bombay Stock Exchange (or BSE) whereas the NSDL operates on the National Stock Exchange (or NSE).
Promoters – CDSL is encouraged to be invested and traded on via the BSE whereas the NSDL is encouraged to be invested in and traded on via the IDBI Bank Ltd, the Unit Trust of India, and the NSE.
Account Number Format – Demat accounts held under CDSL feature 16 numeric digits whereas NSL Demat accounts feature 14 numeric digits which accompany alphabets – IN.
Variations in the number of depositories – The CDSL is more popular with over 599 depository participants signed up under it while the NSDL has 278.
Demat accounts offer their account holders a number of services including but not limited to trade settlements, market, and off-market transfers, and safekeeping. Open a free Demat account today such that you too can avail of the benefits and services on offer. It is important to do due diligence prior to making any buy, sell or hold decisions pertaining to securities you might have your eye on. This preliminary research can reduce the potential of your incurring any risks and / or losses and can potentially allow you to accrue greater returns.