NSDL – National Securities Depository Limited is one of the major depository in India. A depository is an organization that helps traders and investors to buy or sell shares and other securities digitally. Earlier, shares were held as physical share certificates. But with the dematerialization of shares, traders have switched to holding these shares electronically.
Depositories like the NSDL have played a vital role in this transition, and to this date, they continue to support and enable dematerialized, paperless trades while also being responsible for eliminating the risk associated with holding shares and securities in physical form.
On August 8, 1996, the NSDL was established. It was the country’s first national electronic depository. Its establishment was a significant step towards modernizing India’s financial markets, making the transition to a paperless economy more concrete and quicker.
How NSDL Works?
National Security Depository Limited (NSDL) functions similar to a bank account system for securities such as bonds and shares, which are represented by tangible or intangible certificates. It was created to help with the quick transfer of securities. It saves a lot of time now since all transfers are done electronically. The NSDL maintains Demat accounts, which are electronic accounts where financial securities are maintained.
Several market participants, including banks, investors, and brokers can open accounts with NSDL. However, do note that if you want to open an account with NSDL, you can’t approach it directly. You have to do so through a Depository participant (DP). A DP is an intermediary between you and NSDL.
How to open an NSDL Demat account?
NSDL Demat accounts are fairly easy to open. These are the steps:
- Choose your preferred Depository Participant
- Account opening form is to be filled and submit all KYC documents including identity proof, Address Proof, Pan Card, Aadhaar Card and Bank account details
- After all the documents have been received by the Depository Participant, a verification process begins.
- Once all your documents are successfully verified, the depository participant will open the NSDL Demat account on behalf of the customer.
- After the account gets opened the Depository Participant will provide you DP ID, Client ID, master client report, tariff sheet, and a copy of the rights and obligations of the beneficial owner and depository participant.
- In addition NSDL Demat account login credentials from the depository participant will also be provided.
What Are The Services Provided By NSDL?
NSDL provides three services which includes
1. Basic Services
2. NSDL (Consolidated Account Statement)
3. Value Added Services
1. Basic Services
Under the provisions of the Depositories Act, NSDL provides various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialization, rematerialisation, settlement of trades through market transfers, off market transfers & inter-depository transfers, distribution of non-cash corporate actions and nomination/ transmission.
The depository system, which links the issuers, depository participants (DPs), NSDL and Clearing Corporation/ Clearing house of stock exchanges, facilitates holding of securities in dematerialized form and effects transfers by means of account transfers. This system which facilitates scrip less trading offers various direct and indirect services to the market participants.
Some of the services are as under
- Account Maintenance
- Market Transfers
- Off Market Transfer
- Margin Pledge
- Corporate Action
2. NSDL CAS (Consolidated Account Statement)
NSDL CAS is a single statement which includes all investment made by single holders or joint holders in the security market. This facility helps the investors to electronically access their financial assets as a part of single account. The NSDL consolidated account statement includes details of various instruments such as investment in equity shares, debentures, government securities held in Demat form, Mutual funds, Treasury bills etc.
3. Value Added Services
Depository is a facility for holding securities electronically in which securities transactions are processed by book entry. In addition to the core services of electronic custody and trade settlement services, NSDL provides special services like
- Pledge or Hypothecation of securities
- Automatic Delivery out Instructions
- Dividend Distribution
- Lending and borrowing
- Public Issue
- SMS Alert
NSDL has also set-up a facility that enables brokers to deliver contract notes to custodians and/or fund managers electronically. This facility called STEADY was launched by NSDL on November 30, 2002. STEADY is a means of transmitting digitally signed trade information with encryption across market participants electronically, through Internet.
Benefits Of Holding A NSDL DEMAT Account?
- No Bad Deliveries: – NSDL has eliminated the issue of bad deliveries. This is because NSDL holds securities in a dematerialized format which does not require the examination of asset before purchasing.
- Elimination of Physical Certificate Risks: – The primary reason for the establishment of NSDL is the elimination of risks associated with certificates. Risks such as physical wear and tear, fire, destruction etc. are all avoided when securities are held in a Demat format. Additionally, it saves the cost of issuing duplicate physical copies of certificates.
- Elimination of Stamp Duty: – Since the securities are transferred via depositories electronically, there is no need for paying stamp duty link in the traditional method. No stamp duty is required while transferring equity shares, debts, bonds and mutual funds.
- Immediate Transfer & Registration of Securities: – Once the security is credited to the investor’s account, he becomes the legal owner of that security. The tedious process of sending it to the company registrar to transfer ownership and all the risks involved with it are eliminated.
- Easy Change in Details- In case there is a change to be made in the investor’s details, the same had to be made across all companies, where you had invested. But now with the help of an NSDL Demat account, you just have to inform your depository participant, and provide necessary documents. The data gets updated immediately.
As there are certain advantages of NSDL there are few Disadvantages also
- Privacy issues as hacking can be done
- Technical glitches can be faced
- Coordination problems.
How Has NSDL Helped In Making Stock Markets Efficient?
Depositories like the NSDL were important in this change, and they continue to support and facilitate dematerialized, paperless trading while also removing the risk associated with owning shares and securities in physical form to this day. Theft, fraud, loss, delivery delays, and damage are examples of these dangers.
The NSDL has ushered in a slew of good changes in India’s financial industry. Here are a few of them. The entity has eliminated the danger associated with physical share certificates while also lowering the costs associated with duplicating physical certificates copies.
Because the NSDL stores assets in Demat form, the risk of bad deliveries is also eliminated. With the formation of the National Securities Depository Limited, transaction settlement has become faster and smoother, enhancing liquidity, and speeding up turnover for dealers and investors.
There’s also a lot less paperwork to deal with, which makes the whole process go faster. The periodic statements issued digitally by NSDL also assist dealers and investors in staying up to current on their transactions.
Once NSDL Demat Account is opened , electronic buying and selling of shares is possible. NSDL provides SMS alert services to its account holders so that they can receive instant alerts about their transactions.
Other facilities in NSDL Demat includes NSDL Mobile Application, E-voting facility and Electronic Delivery Instruction Slip. The one important message to all users is NSDL credentials should never ever be shared with anyone else there can be hacking and unauthorized access which can lead a major portfolio loss.
So in short we can say that NSDL seeks to develop efficient solutions to increase efficiency and safety of the settlement process in the capital market system. It plays a central role in developing products that will nurture the needs of the financial services industry.
Learn More About Depositories & NSDL
Frequently asked Questions?
NSDL aims at providing safety and soundness to Indian marketplaces by implementing settlement solutions that can increase efficiency, minimize risk and reduce transaction costs.
NSDL stands for National Securities Depository Limited. It is India’s oldest depository institution, established in 1996. It was the country’s first electronics securities depository and holds securities such as bonds, shares, etc., in an electronic format.
Nsdl Payments Bank Limited is an Indian Non-Government Company. It’s a public company and is classified as a company limited by shares.
Nsdl Payments Bank Limited is an Indian Company which is currently not listed on any stock exchanges.
The much awaited IPO of National Securities Depository Limited (NSDL) is likely to finally happen in 2023. This marks the 25th anniversary of the setting up of NSDL in India.