NSDL or the National Securities Depository Limited is one of the oldest and largest depositories in India. NSDL holds and safeguards the securities that are traded in the securities market. It became the first electronic securities depository in India. Established on 8th August 1996, the organization holds the shares, bonds, other kinds of financial instruments in electronic format. In this article, you will all the basic details about the organization like NSDL meaning, how it works, etc.
Let us first understand NSDL meaning.
NSDL is just like a bank account that holds investor’s bonds, financial instruments and other class of securities in an electronic format. With the introduction of this facility, the management of securities has become much more convenient, safer and simpler. At the moment, lots of stockbrokers in India have collaboration with NSDL to keep the securities of the investors safe and secure. It is always advisable for the investors to check the broker affiliation before opening the demat account.
We hope that you understand NSDL Meaning, Now Let us now learn about how NSDL works?
How NSDL Works?
NSDL provides services to the banks, brokers, investors, and all the other participants in the Indian financial market that issue securities. They can avail of the services by opening a depository account with the depository participants. The depository account can be of three types.
- Clearing member account
- Beneficiary account
- Intermediate account
The above three accounts provide different kinds of services. They are as follows;
- The first kind of service is dematerialisation in which the investors can convert their physical holding of shares certificate into electronic format. They can do so by defacing the certificates and surrendering them to the depository participant. The DP then informs the NSDL about it and send the documents to the issuer of the securities. When the authorities of the issuer of securities approve the request to the NSDL, the NSDL converts securities into electronic form and credits them into the depository account.
- The second type of services dematerialisation in which investors can convert their holdings in the electronic format into physical certificates by following the reverse procedure of dematerialisation.
- Another type of service that NSDL offers is an SMS alert. Demat account holders can get an SMS alert service to receive all the account information directly from the NSDL.
- NSDL also provides the services known as NSDL CAS or the consolidated account statement that gives all the information about the investment made in a single or joint name in the security market.
Some of the secondary level services that NSDL provides are as follows;
- Off-market transfers that clearing corporations do not clear.
- Allows market transfers where securities can be sold.
- Allows inter-depository to transfer from one depository to another.
- Corporate benefits that companies give its investors like hypothecation or pledge of shares, distribution of dividend, lending and borrowing, automatic delivery of services and public issues.
Let us now learn about the benefits of NSDL.
Benefits of NSDL
- Earlier, the transfer of securities between buyers and sellers used to take to 2- 4 months. But NSDL provides the option of immediate fund transfer and registration of securities. Now the transfer can be made immediately into the buyer’s depository account.
- NSDL is all about working online and this has led to less usage of paper. Now data is available to you within seconds with just a few clicks.
- Since the information about all the securities is available online, there is no problem of bad delivery.
- The investors get the benefit of receiving the bonus and right shares directly into their demat account.
- Electronic transfer of securities has led to the elimination of stamp duty which was otherwise compulsory during the transfer or sale of securities in physical form.
Since there are so many benefits of NSDL, there are some concerns too. In this section of the article, we will look at the concerns relating to the NSDL.
- Since all the transactions with NSDL are done online, there is a high risk of privacy issues. The number of frauds is increasing and with that, the cases of hacking are also on the rise. Therefore, no physical checking is a concern while doing transactions online.
- It is practically not possible to set up a single depository.
- There is no doubt that NSDL is an efficient system of transfer and many investors have taken its benefits. However, when there is multiple depository system there is a lot of problem relating to coordination.
- Due to the presence of a number of depositories in the country, the shareholders are experiencing high costs for maintaining their accounts with the depository participants.
- The regulation and maintenance by the Securities and Exchange Board of India is not strict here. There is a scope for a lot of improvement.
- NSDL is still not a mandatory provision for a large number of companies as it is still kept as an option.
NSDL Website: https://nsdl.co.in/
NSDL represents the economic development and growing digitization in the country. It is one of the largest depositories in India. They have successfully helped in the replacement of transactions that were based on paper. With electronic transfer, the services have becomes faster and safer. Apart from that, NSDL is constantly helping the companies and banks in improving their efficiency and reducing their costs. In case, you are looking to enter the Indian stock market and seek any help, you can visit Trading Fuel. The free blogs and articles on the page will enhance your knowledge and inform you about the latest developments in the stock market. We also provide deep insight into strategic trading and financial planning. By covering all aspects of investment and trading, Trading Fuel is the number one share market blog of the country. We hope that you should like our Blog of NSDL Meaning or What is NSDL? If any Query, Mail Us.