NSDL:National Securities Depository Limited

NSDL – National Securities Depository Limited

There are two central depositories in India
  • National Security Depository Limited (NSDL)
  • Central Depository Services Limited (CDSL)

NSDL is the first & largest depository in India established on November 8, 1996 which is basically formed for the purpose of handling the securities held in dematerialized form in the Indian capital market. NSDL opens 3602 accounts on an average each day.

NSDL is promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), and National Stock Exchange (NSE).

Principal Shareholders of NSDL

  • Axis Bank Limited
  • Citibank
  • Deutsche Bank
  • HSBC
  • State Bank of India (SBI)
  • HDFC Bank
  • Standard Chartered Bank
  • Dena Bank
  • Canara Bank
  • Oriental Bank of Commerce

Benefits of NSDL

  1. No bad deliveries: In case of paper based transaction, the buyer did not have the facility of examining quality of asset before buying it, hence there was a risk involved. The risk has been eliminated by NSDL as securities are held in dematerialized form and hence there are no chances of bad deliveries.
  2. Elimination of risks related to physical certificates: – There is a lot of risk involved with physical certificates such as risk of theft, damage due to wear and tear, mutilation, destruction, etc. In depository system, since these certificates are now held in demat form, there is no such risk involved. It also saves the cost incurred for issuing duplicate certificates.
  3.  Stamp duty: Stamp duty was essential in the traditional method, now there is no need of paying stamp duty in case securities are transferred through depositories. This rule is also applicable in case of transfer of equity shares, debt instruments and mutual funds.
  4. Immediate transfer and registration of securities: In depository system, once the security has been credited to the investor account he becomes the owner of that security legally. This is unlike physical system, where he/she was required to send them to company registrar for changing the ownership which used to take a lot of time. It also exposed the investor to the risk of them being lost in transit and opportunity cost in case there is a delay in transfer.
  5. Faster settlement and more liquidity: In case of NSDL, settlement is done on 2nd working day from the trade day, i.e. T+2 rolling settlement. This enables faster turnover of transaction and the liquidity with investor improves.
  6. Faster disbursal of non-cash corporate benefits: NSDL facilitates direct credit of corporate benefits in non-monetary forms such as bonus shares, right shares, etc. to the account of the investor. It offers the facility of quick and safe transfer of securities, thus the risk of certificates being lost in transit is eliminated.
  7. Reduction in brokerage: Transfer of securities through depositories helps in reducing the back office paper work, efforts required at the end of brokers and risk faced by them being an introducer. As a result, the brokerage charged by brokers is also reduced. It is beneficial to both investors as well as brokers, thus this is a win–win situation for both.
  8. Reduction in handling huge paper work: Online transaction of securities leads to reduction in paper work as everything is available online and at a click of few buttons. This doesn’t require maintaining a number of trail documents for the transaction.
  9. Status Reports: Periodic statement of accounts containing the details of transactions executed and status of holding are provided to the investors; thus facilitating better controls.
  10. Ease in change of investor details: In traditional system, if there was any change in the details of the investor such as communication address, the investor had to go through the cumbersome process of getting it changed in every company in which he has invested. This process has been simplified as now the investor needs to inform his Depository Participants (DPs) about the change and submit relevant documents. The data is updated everywhere immediately and there is no need to inform every company separately.
  11. Simplified process of transmission: The transmission of shares held in demat form can be done by simply providing required documents to DPs and transmission is reflected in the database of all the companies wherein the investor is listed as a registered owner of securities. Thus, eliminating the traditional practice in which the nominee or joint holder had to individually communicate to all the companies in which he holds shares.
  12. Simplified process for sale of securities held on behalf of minor: The guardian who has been designated as being responsible for minor is not required to take prior approval of court for selling the securities held in demat form purchased on behalf of the minor.