The Indian stock markets include a vast number of participants. All of these work together to make thousands of trades successful on a daily basis. Whether it is the stock exchange which facilitates trading to the stockbroker who assists investors and traders, there are various market players who work seamlessly to aid the execution of stock trades and make the investments in stock markets possible. One of the key players in the financial market is depositories.
In India, there are two main depositories, the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). Here, we’ll discuss National Securities Depository Limited and all the key factors surrounding this depository.
What is NSDL?
NSDL or National Securities Depository Limited is a financial entity that has been established to hold all securities as tangible or non-physical certificates.
NSDL functions as a bank:
- maintaining Demat accounts specifically for securities such as stocks and bonds
- maintaining securities mostly in the form of intangible certificates
- facilitating fast transfer of securities
Since most securities are now transacted electronically, investors can save a lot of time as compared to the traditional method of exchanging tangible security certificates.
How NSDL works?
Traders and investors can open accounts for holding their shares and securities electronically with NSDL. The institution acts somewhat like a bank, except that customers can open accounts with it to store their securities. NSDL allows account opening to hold securities in dematerialized or electronic format.
There are various market participants who can open accounts with NSDL. Some of them include:
- any other entity that issues securities.
It is important to note that to open an account with National Securities Depository Limited, an investor or other entity cannot directly approach the organization. Participants must open an account by approaching a Depository Participant (DP). DPs, therefore, act as agents or links between depositories such as National Securities Depository Limited and traders or other account holders.
What type of services does National Securities Depository Limited offer?
NSDL offers a wide range of services and functionalities that aid smooth and easy securities trading processes. Listed here are some of them:
- Shares dematerialization – physical share certificates are converted to electronic format
- Shares rematerialization – dematerialized securities converted to physical certificates
- Consolidated account statement shared with account holders – displaying information on investments and securities held in the account
- Communication alerts – to pass on important information to demat account holders on account and investments
- Settlement services – facilitating settlement of trades through the transfer of securities from the seller’s Demat account to the buyer’s Demat account through the DVP process (delivery versus payment)
- E-voting services – facilitating e-voting services for shareholders to vote electronically on resolutions of companies
- PAN services – the issue of PAN cards that can be used for income tax purposes.
What are the advantages of holding a Demat account with NSDL?
Some of the benefits to be availed from NSDL services are:
- Delivery assurance: Demat accounts maintained with NSDL allow investors to easily verify the quality of assets held in electronic form in their account.
- No risk of loss: Since NSDL maintains securities electronically in Demat accounts, there is no risk of loss, destruction, theft, or mutilation of certificates.
- No stamp duty: Securities that are transferred via depositories do not attract any stamp duty, thereby saving cost of investment.
- Quick transfer and registration: As soon as a security is transferred into an investor’s account, he/she becomes its legal owner. This eliminates the cumbersome process and associated risk of approaching the company registrar for ownership transfer.
- Minimal paperwork: With the Demat accounts, a lot of paper-work gets reduced and this results in a reduction of brokerage charges. It also eliminates the need to maintain various documents related to securities transactions.
- Account statements: Investors can regularly access account statements with details of transactions and holdings.
- Easy transmission: Securities held in demat accounts can be easily transmitted by furnishing relevant documentation to the depository participants. The old and new investor details are reflected in company databases, where the investor may be registered as the owner of securities.
- IPO access – Investors can also get access to the IPOs on the stock markets through the NSDL portal. This helps in a hassle-free investment process into the IPO.
Depositories like NSDL have made stock market transactions very easy and smooth for all parties involved. With various value-added services, such as market transfers, inter-depository transfer, off-market transfers and corporate actions, NSDL is crucial to the financial markets in today’s age.
Both CDSL and NSDL are depositories that function under regulations set by the Securities Exchange Board of India. National Securities Depository Ltd. mainly functions for National Stock Exchange or NSE, it also has fewer participants as compared to CDSL. CDSL or Central Depositories Services Ltd. supports BSE and has more participants.
Some of the primary services offered by NSDL include TAN, PAN card, E-TDS, Annual information return, and AIN registration.
Depository Participant or DP is the agent of a depository. A depository, in turn, is an institution holding the securities of an investor in an electronic form via the depository participant. DP acts as a bridge between companies that issue shares and shareholders.
Demat account is an electronic account where securities such as equities, bonds, etc. are stored in electronic format. It offers benefits such as enhanced safety, user-friendly processes, easy transfer of shares, redemption of dividends and bonuses, etc.
To open an NSDL Demat account, an investor/trader can reach out to the depository participant that is registered with NSDL. Certain formalities, like account opening form, KYC, and document submission, must be done before verification is performed. The DP will then open the NSDL Demat account on behalf of the applicant.