National Securities Depository Limited: Products and Services
- 7 August 2020 | 1068 Views | By Abhinav Mishra
With the recent surge in retail investors hopping into the boat of equities and debts, an increased awareness in the central security depository is visible. NSDL, being one of the oldest depositories in India, has been serving since several years in this sector. Now, almost set to launch its own IPO, NSDL has become a financial service major, with several products to offer.
In this article, we shall explore the basics and gain in-depth knowledge about NSDL and its products.
What do you mean by NSDL?
NSDL stands for National Securities Depository Limited.
What is NSDL and its functions?
NSDL is a financial organization created to hold securities such as shares, bonds, etc in the form of non-physical or physical certificates held in specialized bank accounts known as Demat account. You can compare it with a traditional bank – the only difference is that banks hold your money while NSDL holds the bonds, stocks, and other such classes of securities.
In a traditional practice, a lot of time was taken to transfer the ownership of securities since physical certificates had to be exchanged after a trade was completed. The Indian capital market which is more than a century old had always been very active but it always had some shortcomings – delayed execution of transfers, bad delivery, etc. All this happened because of paper-based settlements. To overcome these shortcomings, The Depositories Act, 1996 was passed which provided a green signal for the creation of Security Depositories in India for managing security. NSDL was formed on 8 August 1996 as the first electronic securities depository at the national level.
Is NSDL a Government Company?
No, NSDL is not a government company or public sector enterprise as it is not owned by the central or state government. It is promoted by the Industrial Development Bank of India (IDBI), National Stock Exchange (NSE) and Unit Trust of India (UTI). The principal shareholders of NSDL are as follows –
- Axis Bank Limited
- Deutsche Bank
- State Bank of India (SBI)
- HDFC Bank
- Standard Chartered Bank
- Dena Bank
- Canara Bank
- Oriental Bank of Commerce
How do I open an NSDL Demat account?
In order to avail of depository facilities, an investor has to open a beneficiary account with a depository participant (CDSL or NSDL) of his choice. Opening a Demat account is a straightforward process.
Demat Accounts: Need, Basics and Working
To open the NSDL account, investors have to approach NSDL DP which will help them complete the formalities. Investors will have to fill up a form, submit address proof and PAN. Also, they will have to provide their bank details.
After your Demat account is opened, your NSDL will provide you a Client ID and DP ID, a copy of your Client Master Report containing your Demat account related details, tariff sheet, and ’Rights & Obligations of Beneficial Owner and Depository Participant‘.
What are the services offered by NSDL?
NSDL provides services to investors, banks, brokers, and other kinds of security issuers. All these participants can open a depository account with the DP’s (Depository Participant). The depository account can be of three types – Intermediate account, beneficiary account, and clearing member account.
NDSL provides below services:
- Dematerialization – Using this service an investor can convert the physical certificates into the electronic balances. Investors need to surrender their physical certificates to the DP which informs the NSDL about them and then sends the documents to the concerned issuer. Once the authorities are satisfied they can confirm the request to the NSDL. NSDL then converts the securities into balances credited into the depository account.
- Rematerialization – This is the reverse of dematerialization where the investor can convert the securities in electronic form into the physical certificates.
- NSDL also provide NSDL CAS (Consolidated Account Statement) service in which you get all the investments held in single and joint names in the security market.
- Market Transfer – It allows investors to buy and sell the securities held by them in the dematerialized form.
- Off Market Transfer – Off-Market trades are trades that are not settled through the clearinghouse or cleaning corporation of an exchange. Some of the examples of off-market trades are delivery of securities to or from sub-brokers and delivery for trade-for-trade transactions.
- Inter-depository transfer – is the transfer of securities from an account in one depository to an account in another depository.
- Transmission – It is the devolution of title to shares other than by transfer. Some examples are devolution by death, inheritance, succession, bankruptcy, etc.
- Corporate actions – These are benefits given by companies to the investors. Benefits can be in the form of dividends, interest, bonus, rights, etc.
NSDL provides various other value-added services like hypothecation of securities, automatic delivery of securities to clearing corporations, pledge, stock lending, distribution of various cash and non-cash benefits, Demat of NSC/KVP, Demat of warehouse receipts, etc.
What is the difference between NSDL & CDSL?
CDSL is another electronic depository of securities. It stands for Central Depository Securities Limited and was formed in 1999.
While NSDL deals with National Stock Exchange (NSE), CDSL works for the Bombay Stock Exchange. NSDL has slightly higher investors, it has 1.7 crore investors account while CDSL has a 1.6 crore investor accounts. NSDL has 30500 DP service centers in over 2000 cities while CDSL has 19000 DP service centers.
There is a difference between NSDL and CDSL Demat account number. Demat accounts held with CDSL have 16 numeric digits in them and NSDL Demat accounts have two alphanumeric digits- ‘IN’ followed by 14 numeric digits.
Which is better NSDL or CDSL?
From the above differences, you can conclude there is not much difference between CDSL and NSDL. Both offer the same facilities to customers and hence the concept of better does not arise. Your investment decisions, the performance and return of your portfolio have nothing to do with which depository is your DP associated with. If ever you see a broker telling one is better than others, it is only a marketing trick.
What are the benefits of NSDL?
The various benefits of NSDL are:
1. No risk associated with physical certificates
The primary risks with physical certificates were physical wear and tear, destruction in case of fire and other similar unavoidable circumstances. NSDL eliminates all such risks and also saves the cost of issuing duplicate copies.
2. No risk of bad deliveries
Since everything is dematerialized there is no risk of bad deliveries.
3. No stamp duty
Since securities are transferred electronically, there is no stamp duty concept, unlike the traditional method where stamp duty was charged for transferring equity shares, bonds, debts, and mutual funds.
4. Registration and transfer of securities
In the traditional method, investors had to send the transaction receipt to the registrar which was a time-consuming process. With NSDL, once you have purchased any security, you are the legal owner.
5. Faster settlement process
NSDL does the fastest mode of settling transactions the settlement is done on the second day from the day of trading. This allows more liquidity to investors.
Faster disbursement of non-cash corporate benefits corporate can easily credit corporate benefits in the form of bonds, shares, and debentures straight to the account of the investor.
6. Less paperwork
Paperwork is minimal since everything online which also saves a lot of time by reducing manual efforts.
7. Reduction in brokerage
Transfer of securities through depositories helps in reducing the efforts required at the end of brokers, back-office paperwork and risk faced by them being an introducer. This makes sure the brokerage charged by brokers is also reduced. It is beneficial to both brokers as well as investors, thus this is a win-win situation for both.
8. Periodic reports
Investors can receive a periodic set of statements and accounts via email.
9. Process of transmission
If an investor wants to transfer their securities of ownership, they can do that by simply providing the relevant documents to the DP’s. As soon as it is accepted, the details for the same are immediately updated in the database of all the companies.
Is NSDL safe?
Yes, NSDL is completely safe. Since a huge amount of money is involved in the execution of transactions at NSDL, every possible safety measure is taken to ensure the safety of investors’ money. The safety measures are:
Selection criteria decided by SEBI for DP
SEBI makes sure that only credible entities are selected as DP (Depository participants).
DP’s are required to provide periodic account statements to investors for better monitoring and controlling.
Monitoring of NSDL servers
Every transaction executed through NSDL is recorded in the database maintained by business partners as well as on the NSDL central server.
Registrar and Transfer (R&T) agents and Depository participants are subject to regular audits by NSDL.
Random counter checks
NSDL does random checks by forwarding statements to a random list of investors for them to match the statement issued by DP.
Protection of data
The data exchange that happens between NSDL and its business partners is secured by encryption using the latest technologies.
All the concerns of investors have to be resolved by a concerned business partner. In case they fail to do it, investors can directly approach NSDL.
NSDL covers and compensates for losses due to omissions, negligence of DPs, error, etc.
NSDL maintains a disaster back-up site to make sure 24×7 availability of the data even after man-made or natural disasters. This site is identical to the mainframe computer and operates when the main computer becomes in-operational.
Who are business partners of NSDL?
You have seen there are a lot of activities that NSDL does, it carries out its activities through various bodies which are also known as ‘Business Partners’. These are:
- Depository Participants – Investors take NSDL service through DPs. As per SEBI regulation banks, financial institutions, brokers, and custodians can be appointed as a DP. Appointment of DPs is a 2 step process – first, evaluation and confirmation by SEBI, and then evaluation and approval by NSDL.
- Issuers – the entity must be able to offer dematerialization facilities to the shareholders to become an issuer in NSDL.
- Registrar and Transfer (R&T) Agent – In the NSDL depository system, the issuer can create and extinguish securities held in the Demat form. To effect create and extinguish actions, the issuer may utilize the computer facility that is built in-house or borrowed from the said R&T Agent. Thus, the R&T Agent lends the required computer facility to first confirm and then execute these activities.
- Clearing Corporation/House – A clearinghouse is a mediator between the sellers and buyers of financial instruments. It is responsible for settling trading accounts, collecting and maintaining margin money, clearing trades, regulating delivery, and reporting trading data.
- Investors – is a person that invests in financial instruments. You can become an investor by opening a beneficiary account with the DP by providing the required documents.
- Broker – are a link between the associated clearing house and investors. They must have a clearing account with any DP. Such an account can be utilized only for the purpose of transferring and receiving the shares from and to the concerned Clearing Corporation/House.
Another function of NSDL
The Income Tax Department (ITD), (Government of India) has appointed only two entities namely NSDL e-Governance Infrastructure Limited (NSDL e-Gov.) and UTI Infrastructure Technologies Services Limited for purpose of receiving and processing of PAN applications.
Which is faster NSDL or UTI?
If you are looking for major differences, then there are none. Usually, the fastest will be one which will have office nearest to the applicant, the PAN application processing time is the same. But NSDL has more franchises and offices in India.
What is the NSDL payment bank?
Payments bank is a differentiated bank providing a limited range of products, such as remittances of funds and acceptance of demand deposits. It can accept a restricted deposit, at present the limit is set to ₹ 1 lakh per customer. However, these banks cannot issue credit cards or extend loans.
NSDL Payments Bank Limited is an Indian Non-Government Company. It’s a public company and is classified as ‘company limited by shares’. It started its operations in October 2018 to support the initiative of providing simplified banking services to every Indian. NSDL Jiffy is the face of NSDL Payments Bank. It enables users to perform quick, smooth, and secure transactions. It has an uncluttered interface to ensure users are well guided through their entire banking journey.
NSDL Payments Bank assures complete transparency, best in class digital banking experience, and nationwide reach through their app NSDL Jiffy which can be used by everyone, from anywhere.
What are the benefits of using the NSDL mobile app?
NSDL Mobile App lets you view balances in your Demat account on your mobile anytime, anywhere. You can view all your purchases under NSDL in one place even when the DP is different.