NSDL - National Securities Depository Limited

National Securities Depository Limited (NSDL) is one of the largest Securities Depository introduced on November 8th, 1996. NSDL was launched with the intention to do away with paper-based trade settlement which was earlier an obligation. The NSDL securities are held in depository accounts. These financial assets can be traded in financial market. Some of the instruments that you can trade in are equity, common stocks, equity warrants, fixed income instruments, etc. Transactions under this organization are cost-effective and secured compared to certificates. Because of dematerialized (physical or non-physical certificates) format of securities, you can expect a quick turnaround for purchase and sell of shares, bonds, and other securities.

In this post, we will discuss about types of central depositories in India, Safety Measures Followed by the NSDL, services provided, benefits of NSDL, and frequently asked questions.

Central Depositories in India

NSDL (National Security Depository Limited) and CDSL (Central Depository Services Limited) are the two central depositories in India. NSDL is the largest and the first depository in the country that was established on 8 November, 1996. It is promised by UTI (Unit Trust of India), IDBI (Industrial Development Bank of India), and NSE (National Stock Exchange). The purpose of it was to handle the dematerialized securities in the Indian capital market. The principal shareholders of this entity are mentioned below:

  • Dena Bank
  • Deutsche Bank
  • Canara Bank
  • Axis Bank Limited
  • State Bank of India (SBI)
  • HDFC Bank
  • Citibank
  • Oriental Bank of Commerce
  • HSBC
  • Standard Chartered Bank

Safety Measures Followed by the NSDL

National Securities Depository Limited executes huge amount of transactions every day. Thus, the establishment takes different types of necessary safety measures for the depository system for investors holding. These cautions are given as below:

  1. Entities Finalized by SEBI: It is SEBI that finalizes which credible entities should be selected as DPs (Depository Participants).
  2. Timely Account Statements: DPs have to release periodic account statements to investors.
  3. Central NSDL Server Records Transactions: Any transaction executed here is recorded on the central server of NSDL. The information is also recorded in the database managed by the business partners.
  4. Hitech Infrastructure: The communication and computer hardware/software used by business partners and NSDL are high-end and in tandem with the industry standards.    
  5. Random Checks:Random counter checks are organized in order to check on a random list of investors and match the statement issued by the Depository Participant. This helps to find out any possible discrepancy.
  6. Periodic Inspections: Regular audits are done for R&T (Registrar and Transfer) Agents as well as DPs.
  7. Data Protection: Any data transferred or exchanged between NSDL and its business partners are encrypted as per the latest and high-quality technology.
  8. Resolving Grievances: The grievances and concerns of investors are quickly resolved by the relevant business partner. In case it is not done so, then the investor can directly contact NSDL for the same.
  9. Regular System Checks: Periodic review is undertaken for all the communication network, software, and hardware so that these remain secured and properly functional.
  10. Certification for Depository Operations: For the DPs, NSDL has a special certificate programme called the NCFM certification in depository operations. This certificate must be attained by at least a person from each Depository Participant. The programme is for the purpose that every DP branch has at least an expert individual for depository systems, and is able to explain about it to local investors.
  11. Verification of Account Activity: DPs can execute debit and credit entries in the particular account only after a verified instruction by the client.
  12. Insurance Cover: NSDL has insurance cover for investors to protect them from any loss because of errors, omissions, or negligence by DPs, etc.
  13. Disaster Back-up: In case of a manmade or natural disaster, NSDL’s disaster back-up site helps to recover data. This service is available 24 x 7. The site resembles the mainframe computer. It functions in case of main computer gets in-operational for any reason.
  14. Freeze Facility: Freeze options for securities in the account are available for the depository account holders. They can opt to freeze debits and credits, only debits, individual ISIN in the account, or particular number of securities that are a part of the ISIN in the account.
Read More : Business Partners of NSDL

What Are the Services Provided by the NSDL?

The NSDL services are grouped under 3 broad categories:

1) Basic Services: National Securities Depository Limited offers different services to brokers, security issues participating in Indian financial market, investors, banks, etc as per the provisions of Depositories Act. Any broker, intermediary, or investor who wish to subscribe to NSDL services, has to open a depository account with the Depository Participant. Now a depository account can be of 3 types such as Clearing member account, Beneficiary account, or Intermediary account. Services offered to these accounts are given below:

2) Value Added Services: NSDL offers other services such as pledge, hypothecation of securities, distribution of cash and non-cash benefits, automatic delivery of securities, stock lending, demat of warehouse receipts, demat of NSC/KVP, and much more. Below mentioned are a few important services the entity provides:

  • Dividend Distribution: National Securities Depository Limited takes care of corporate cash benefits distribution such as dividends to shareholders. NSDL provides the details of beneficial security owners as on the record date of relevant company to the company in question or its registrar. The data is then shared with the R&T agent and the company’s R&T agent sends the dividend settlements to the beneficial owners. Both shareholders holding physical certificates and beneficial owners are eligible for the same.
  • Hypothecation or Pledge of Securities: You can pledge or hypothecate securities held in a depository account to take a credit facility or loan. But the pledger and lender must have an NSDL depository account to pledge the securities.
  • Lending and Borrowing: Only the intermediaries registered with SEBI under the Securities Lending Scheme, 1997 can undertake lending and borrowing transactions on securities. The intermediary can deal through a special account i.e. Intermediary Account for the depository system. This account is to be opened with a DP on approval by SEBI, and registered itself with SEBI under the Securities Lending Scheme. The approval should also come from NSDL.
  • SMS Alert: The entity provides SMS alerts to demat account holders. The account holders get direct alerts from NSDL on different transactions such as debit transfers, overdue instructions, failed instructions, etc. This service is free-of-charge.
  • Public Issue: As an investor, you can seek electronic storage of public issues. This facility is offered by the NSDL depository system. The securities are allotted to the depository account of the investor. This is done in demat form, because as per the SEBI guidelines, all the trades and shares issued from public is settled in this form only.
  • Automatic Delivery Out Instructions: Based on the net delivery norms of Clearing Members, NSDL allows the Clearing Corporation to put ahead the delivery-out instructions to move securities to CM Delivery Account from CM Pool Account. The Clearing Corporation is allowed to generate Auto DOs in substitute to Clearing Members.

3) NSDL CAS (Consolidate Account Statement):

This is a statement for all investments held in joint or single name in the security market. The statement is also provided to sole or primary account holder of the investment account. It helps to keep a check on the investment portfolio. The subscribers can access their financial assets electronically as a part of single account. It also contains information on multiple financial instruments such as debentures, mutual funds, government securities held in demat form, investment in equity shares, money market instruments such as treasury bills, bonds, etc.

Read More : NSDL Fees and Charges for Services

What Are the Benefits of NSDL?

National Securities Depository Limited was put up with an intention to tackle the issue of securities’ ownership in physical form, and their transfers. The NSDL helps to hold the securities in dematerialized form rather and increases safety of the same, making it beneficial for traders/investors in following ways:

  • 1. Efficient Delivery: As securities at NSDL are held in dematerialized form, there is no case of bad deliveries. The buyer does not have to worry about paper-based transaction, or the asset quality anymore.
  • 2. No Stamp Duty: In the past, stamp duty was applicable for the buyers, but now there is no need for the same if the depositor transfers the securities. This holds true for transfer of mutual funds, debt instruments, and equity shares as well.
  • 3. Better Liquidity and Quick Settlement: Settlement is done on the second working day from the day of purchase. Thus, NSDL follows T+2 rolling settlement system, which makes for quick turnaround of transaction. This leads to better liquidity for the investor.
  • 4. No Risks of Damage/Theft: As there are no physical certificates involved, there are no risks of thefts, mutilations, damages through wear and tear, destructions, and more. This is because the certificates are available in demat form in a depository system. You will also not need duplicate certificates in this case.
  • 5. Less of Brokerage: Brokerage charged by the brokers is less as the securities get transferred from depositories, reducing the efforts from brokers, back-office paperwork, and other risks.
  • 6. Online Transactions: There is less of paperwork as online transaction of securities take place. You are done with the purchase in just a few clicks without having to take care of physical papers or documents.
  • 7. Instant Transfer and Registration: The investor becomes a legal owner of the security once the security is credited from the depository system to his/her account. In the physical system, it is otherwise, as the investor has to send the security to the company registrar to change the ownership, and this is quite time-consuming process. It can also lead to risk of loss in transit and delay in transfer. Thus, NSDL helps for instant transfer and registration of securities.
  • 8. Statement of Accounts: As an investor, you will receive periodic statement of accounts or status reports with transaction details, and holding status
  • 9. Non-cash Corporate Benefits: The entity allows faster disbursal of credit in non-monetary form to corporates. The credit is transferred to the investor account in form of right shares, bonus shares, and more.
  • 10. Hassle-free Sale of Securities on Behalf of Minor: No court approval is required for the guardian authorized to manage the demat of minor wishes to sell/purchase the securities held on behalf of the minor.
  • 11. Seamless Transmission Process: You have to submit the required documents to Depository Participants (DPs) for transmission of shares in demat form. The change will reflect in database of all the organizations where you are listed as the registered security owner. Thus, there is no need of the joint holder or nominee to also individually inform all the companies where they hold the shares.
  • 12. Easy Update in Investor Details: Earlier, if the investor wished to change details such as his/her communication address, etc, then he/she had to change the same for every company where investment was held at. But now, the investor has to update/inform the DPs (about the change, and provide the required documents). The changed information will reflect in every company where investments are held, and no separate updates have to be made at all.

Frequently Asked Questions about NSDL

Here are the NSDL FAQs:

It is a service first launched in September 2001. This is available for participants only for the subscribers of SPEED-e. The subscribers get smart card, e-token, or password as access rights. It allows the investors to upload delivery instruction directly on the SPEED-e website. With such a facility, it reduces the turnaround time.
Clearing Members are the customers with POA (Power of Attorney). On SPEED-e facility, the Clearing Members can set up auto pay-in instruction for participants to debit the demat account of the client, and then credit the pool account of the clearing member.
IDeAS, a service, was launched in January 2004. It helps to view balances and transactions done through the demat account online.
NSDL launched the service STEADY for contract notes. Here, the brokers can deliver/submit contract note electronically to fund managers/custodians. The facility also helps the recipient to modify contract notes. The brokers also have to transmit encrypted and digitally signed trade information.
DAN is a service where subscribers can authenticate or validate identities such as client ID, PAN, DP ID, and other details given by investor on online platform.
The SIMPLE facility is by NSDL for those who subscribe to SPEED-e service, and make use of password for login. It helps the clients to issue transfer instructions from the registered mobile number with National Securities Depository Limited. For the transaction to take place, the subscriber has to login to the SPEED-e website, with the help of phone enabled of GPRS facility.