Depositories in India: NSDL and CDSL Complete Guide

Introduction: From Paper to Digital Securities

“Gone are the days of physical share certificates and the risks they carried. Today, your securities exist as electronic entries, safe and instantly transferable.”

Depositories are the custodians of India’s securities in electronic form. They’ve revolutionized how we hold and transfer shares, eliminating risks of theft, forgery, and delays. Understanding depositories is essential for every investor in Indian markets.

What is a Depository?

Definition

A depository is an organization that holds securities in electronic (dematerialized) form and facilitates securities transactions through book entry.

Think of it as:

• A bank holds your money in accounts
• A depository holds your securities in accounts

Before Depositories

Paper-Based System Challenges:

After Depositories

Dematerialized System Benefits:

Depositories in India

National Securities Depository Limited (NSDL)

Market Share: ~75% of dematerialized securities

Central Depository Services Limited (CDSL)

Market Share: ~25% of dematerialized securities

NSDL vs CDSL

Note: Both depositories are interoperable—securities can move between them.

Dematerialization Process

What is Dematerialization?

Converting physical share certificates into electronic form held in demat account.

Step-by-Step Process

Step 1: Open Demat Account

• Choose DP (broker/bank)
• Complete KYC
• Receive BO ID

Step 2: Submit DRF

• Dematerialization Request Form
• Attach original certificates
• Surrender to DP

Step 3: Certificate Verification

• DP sends to Registrar & Transfer Agent (RTA)
• RTA verifies authenticity
• RTA confirms to depository

Step 4: Credit to Account

• Electronic credit to demat account
• Physical certificates destroyed
• Process takes 15-30 days

Required Documents

Rematerialization

What is Rematerialization?

Converting electronic securities back to physical certificates.

Process

1. Submit Remat Request Form (RRF)
2. DP debits demat account
3. Request sent to RTA
4. RTA issues physical certificate
5. Certificate dispatched to investor

Why Would Someone Remat?

• Rare today
• Some prefer physical (legacy mindset)
• Gift purposes
• Specific legal requirements

Note: Remat is uncommon; most keep securities in demat form.

Depository Participants (DPs)

What is a DP?

An intermediary between investor and depository—similar to bank branch for depository.

Types of DPs

DP Services

Choosing a DP

Consider:

• Annual maintenance charges (AMC)
• Transaction charges
• Service quality
• Technology platform
• Customer support

Cost Comparison:

Demat Account Details

Account Identifier

NSDL Format:

• IN followed by 14 characters
• Example: IN30002010123456

CDSL Format:

• 16-digit numeric
• Example: 1234567890123456

Account Types

Account Documents

For Individual:

Securities Held in Demat

Eligible Securities

ISIN

International Securities Identification Number:

• 12-character alphanumeric
• Unique identifier for each security
• Format: INE followed by 9 characters
• Example: INE002A01018 (Reliance)

Transfers and Transactions

Off-Market Transfer

Direct transfer between demat accounts:

1. Fill Delivery Instruction Slip (DIS)
2. Provide receiver’s demat details
3. Submit to DP
4. Securities transferred

Use Cases:

• Gift to family
• Transfer to own another account
• Private transactions

Market Transfer

Through exchange:

1. Sell order on exchange
2. Trade executed
3. Clearing corporation nets
4. Settlement (T+1)
5. Debit from seller’s demat
6. Credit to buyer’s demat

Pledge/Hypothecation

For Loans:

1. Investor pledges shares to lender
2. Shares marked as pledged
3. Cannot sell until unpledged
4. Lender can invoke if default

Inter-Depository Transfer

NSDL to CDSL or vice versa:

• Possible and allowed
• Takes 1-2 days
• Charges apply

Corporate Actions

Automatic Credits

Types:

Record Date

The date on which you must hold shares to receive corporate action benefits.

Example:

• Record date: January 15
• You must hold shares by end of January 14
• Bought on January 15 → Not eligible (T+1)

ASBA for Rights

Applications Supported by Blocked Amount:

• Apply for rights issue
• Money blocked in bank (not debited)
• Allotment → money debited
• No allotment → money unblocked

Technology Platforms

NSDL Platforms

CDSL Platforms

Consolidated Account Statement (CAS)

What it contains:

• All demat holdings (NSDL + CDSL)
• Mutual fund investments
• Bonds and NCDs
• Single view of all securities

Frequency: Monthly (if transactions) or half-yearly

Charges and Fees

Types of Charges

BSDA (Basic Services Demat Account)

For Small Investors:

Security and Safeguards

Nominee Registration

Why Important:

• Securities transfer in case of death
• Avoids legal complications
• Nominee can claim directly

Process:

• Register nominee at account opening
• Can be changed later
• Max 3 nominees with percentage

Freezing Account

Can Freeze:

• Specific ISIN (particular security)
• Entire account
• Debit only or credit only

Use Case:

• Prevent unauthorized transactions
• Dispute situations
• Security concern

Alerts and Notifications

SMS/Email for:

• Every debit/credit
• Statement generation
• Pledge creation/release
• Corporate actions

Two-Factor Authentication

For Online Services:

• Password + OTP
• Transaction PIN
• Digital signature for high-value

Investor Protection

SEBI Regulations

SEBI (Depositories and Participants) Regulations:

• Registration requirements
• Investor protection measures
• Grievance redressal
• Inspection and audit

Investor Protection Fund (IPF)

Coverage:

• Depository has IPF
• Compensates investor for DP default
• Subject to limits and conditions

Grievance Redressal

Levels:

1. DP complaint
2. Depository complaint
3. SCORES (SEBI)
4. Legal recourse

Key Takeaways

1. Two depositories – NSDL (1996) and CDSL (1999)
2. DPs are intermediaries – Access depository through DP
3. Dematerialization – Paper to electronic conversion
4. Electronic benefits – Safe, fast, no forgery
5. Corporate actions automatic – Bonus, dividend credited
6. BSDA available – Zero AMC for small investors
7. Interoperable – Can transfer between NSDL and CDSL

Disclaimer

This article is for educational purposes only. Securities investments carry market risks. Ensure you understand demat account terms before opening. This is not investment advice.

Frequently Asked Questions

Q: Can I have accounts in both NSDL and CDSL? A: Yes. You can have multiple demat accounts across different DPs and depositories. Many investors maintain accounts with different brokers.

Q: Is my demat account safe if broker goes bankrupt? A: Your securities are held in YOUR name at depository level, not with broker. Broker is just an intermediary. You can transfer to another DP.

Q: What is the difference between DP and depository? A: Depository (NSDL/CDSL) is the central system holding all securities. DP is the intermediary (like a bank branch) through which you access the depository.

Q: Why do I need both demat and trading account? A: Demat account HOLDS your securities. Trading account allows you to BUY/SELL on exchange. They serve different purposes but are usually opened together.

Q: Can I transfer shares between my two demat accounts? A: Yes, through off-market transfer using DIS. There will be charges but it’s possible, even across NSDL and CDSL.

The depository system transformed Indian capital markets from a paper-based, delay-prone system into a modern, efficient, electronic infrastructure that enables instant, secure transfer of securities.