NSDL is short for National Securities Depository Limited. NSDL was established in 1996, and in its more than 25 years of service, it has modernized India’s capital market by replacing paper-based securities with electronic ones.
NSDL is a financial entity that was established to hold all securities as non-physical or digital certificates. In simple terms, it can be compared to a digital vault for holding and managing financial assets, such as stocks, bonds, and mutual funds, in electronic form. It helps investors and companies keep track of their investments and transactions without the need for physical certificates or paperwork.
Before NSDL came into existence, India’s capital market was plagued by various challenges due to the reliance on physical certificates which involved human intervention throughout for the transfer and ownership of securities. It led to several problems like bad delivery of physical certificates, delayed transfers of titles, and a lack of transparency. Countering these challenges, the Depositories Act was introduced in August 1996, laying the foundation for the establishment of NSDL.
This blog will provide you with a comprehensive guide to NSDL and its functions, covering all the necessary aspects you need to know before opening an NSDL account. Let’s dig in.
How to open an NSDL demat account
Before opening an NSDL demat account, it is important to choose the correct type of demat account suitable for investors to manage their securities that align with their investment needs.
Types of NSDL demat accounts
Basically, there are three types of demat accounts that an investor can choose:
1. Regular demat account: This type of demat account is mostly used by individual investors for holding and trading securities such as stocks, bonds, and mutual funds. Being the most common type, this can be opened by residents as well as non-resident Indians (NRIs).
2. Repatriable demat account: Unlike the regular demat account, this type of demat account is specially designed for NRIs. A repatriable demat account allows holders to manage their Indian securities and repatriate funds abroad.
3. Non-repatriable demat account: This account is also meant for NRIs. The only difference is that the funds and securities held in a non-repatriable demat account cannot be repatriated overseas.
Steps to open an NSDL demat account with a depository participant (DP)
Before we get to the steps involved in opening an NSDL demat account, you need to choose a Depository Participant or DP in short. A Depository Participant (DP) is a registered intermediary authorized by NSDL to offer demat account services. To open an NSDL demat account, you need to contact a depository participant (DP), who is registered with NSDL.
Keep in mind that it is important to choose a reputed DP. The security of your financial assets in a demat account lies in the hands of the DP. Banks, financial institutions, and brokerage firms often act as DPs. Examples of DPs in India are Sharekhan, Motilal Oswal, HDFC Bank, and ICICI Bank.
Now let’s get to the steps involved in opening an NSDL demat account:
- As mentioned above, the first step is to contact an NSDL-registered DP.
- Furnish your personal documents like PAN Card, Aadhaar, and bank details to complete the KYC procedure. (The documents will be verified by the DP).
- Once the verification is successful, the DP will open a demat account with NSDL on your behalf.
- After the account is opened successfully, the DP will share details like your NSDL Demat account number, DP ID, client ID, a copy of your client master report, tariff sheet, and a copy of the rights and obligations of the beneficial owner and depository participant.
- In addition, the DP will also share the NSDL Demat account login credentials, which you can use to log into your NSDL demat account.
Key benefits of having an NSDL demat account
Some of the benefits of holding an NSDL demat account are the following.
- NSDL reduces the risks associated with physical certificates, such as loss, theft, damage, and duplication costs. It also eliminates extensive paperwork, saving time and human intervention.
- NSDL’s digital transfers help avoid the traditional stamp duty since the transfer is done digitally.
- NSDL facilitates quick online transactions. For instance, when a security is transferred to an investor’s account, the person instantly becomes its legal owner.
- NSDL provides regular account statements, which helps users track all demat account transactions seamlessly online.
- NSDL account holders can change their contact information or other updates simply by submitting KYC documents online.
Types of securities held in an NSDL account
NSDL, as a depository, provides a range of services. The securities supported by NSDL include:
1. Equity shares: These shares represent ownership in a company and provide shareholders with voting rights and a share in the company’s profits.
2. Bonds: These are debt securities issued by governments or corporations, representing loans made by investors to the issuer.
3. Mutual fund: NSDL accounts also hold units of mutual funds, allowing investors to maintain a diversified portfolio.
4. Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but are traded on stock exchanges. NSDL accounts also hold ETF units.
In fact, holding diverse securities in a single NSDL account offers several benefits. The diversification reduces risk, simplifies record-keeping, and reduces paperwork. It also enables easy tracking of investments and facilitates efficient asset allocation.
Transacting with an NSDL account
Overview of the T+1 settlement cycle in India
Historically, India followed a T+2 settlement cycle, where securities and payments were settled two business days after the trade date. However, in a significant move, the country adopted the T+1 settlement cycle. Under this system, transactions are settled in one business day after the trade date. The minor change has a significant impact as it reduces settlement risk, improves market liquidity, and boosts investor confidence. Now, let’s see how T+1 settlement cycle applies to NSDL.
How NSDL facilitates the settlement process for investors
NSDL plays an important role in enabling the transition to a T+1 settlement cycle. How? NSDL digitally dematerializes securities, eliminating the need for physical certificates. The shift to electronic holding expedites the settlement process, allowing quick and accurate settlements while reducing risk and other complications that come with paperwork.
Benefits of reduced transaction and delivery time
The integration of NSDL with the T+1 settlement cycle brings several benefits including reducing settlement risk and minimizing exposure to market volatility. It also enhances market liquidity. In addition, the reduced transaction and delivery time fosters investor confidence.
Risks and precautions in algorithmic and co-location trading
The T+1 settlement and NSDL’s services make trading safer. However, high-speed activities like algorithmic and co-location trading bring their own share of challenges. They can cause market problems without careful monitoring, so it’s crucial for traders to be vigilant and responsible.
NSDL account charges and tax implications
NSDL demat account charges can be broadly classified into two categories:
Account charges: This includes all charges related to opening and retaining your account like an initial fee when opening a demat account with NSDL. It also includes annual maintenance charges which cover services like account maintenance, record-keeping, and other services. Additionally, transaction charges are also included in the account charges for buying or selling securities through NSDL accounts.
Tax implications: Like other financial institutions, an NSDL account comes with its own tax implications. They include:
- Capital gains tax: This is the tax incurred when selling securities from an NSDL account. The rate depends on factors like the holding period and the type of security sold
- Securities transaction tax: This is a tax applied to stock market transactions, impacting both buyers and sellers.
How to manage account-related expenses and tax liabilities effectively
To manage account-related expenses and tax liabilities effectively, you should:
- Select an efficient DP with transparent fee structures.
- Keep a tab on transactions regularly and track your investments and transactions.
- Optimize tax benefits by utilizing tax-saving instruments or holding assets for the long term.
- Stay up-to-date with changing tax laws and regulations.
NSDL vs. CDSL: A comparison of Indian depositories
National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the two main depositories in India. The key differences between them are:
- Year of founding: NSDL was established in 1996. CDSL was founded in 1999.
- Promoters: NSDL is promoted by institutions like IDBI Bank and the National Stock Exchange (NSE). CDSL is promoted by institutions like the Bombay Stock Exchange (BSE) and leading banks.
- Market share: NSDL being the first securities repository in India has a larger market share. CDSL, on the other hand, is the second-largest depository and has been gaining market share over the years.
- Demat account format: Demat accounts with CDSL have 16 numerical digits whereas demat accounts with NSDL have 14 numeric digits and start with ‘IN’.
Role of each depository in India’s financial ecosystem
Both NSDL and CDSL play a significant role in India’s financial ecosystem. They facilitate secure and efficient electronic holding and transfer of securities, reducing paperwork and risks. Depositories also support transparency, investor protection, and market growth by ensuring accurate record-keeping, thereby promoting trust and confidence among investors.
Factors to consider when choosing between NSDL and CDSL
When selecting between NSDL and CDSL, some of the factors to consider include account opening and maintenance charges, your preferred DP, services provided, and your specific investment needs. However, the differences are not that extensive so choose the one that aligns with your priorities.
How depositories contribute to the growth of the Indian capital market
Depositories digitalize securities and eliminate physical certificates, which enhances market efficiency and transparency. Depositories also streamline the IPO process and make it easier for Indian companies to raise funds, which fosters the growth and development of India’s capital market.
NSDL is the cornerstone of India’s financial system. It revolutionized the way securities are held and traded. With its electronic storage capabilities, NSDL streamlines transactions and eliminates paperwork and delays, thus enhancing market liquidity and minimizing costs. In addition, NSDL provides investors with an avenue for secure and efficient trading.
Q. How can I check my PAN-Aadhaar link?
A. Step 1: On the e-Filing Portal homepage, under Quick Links, click Link Aadhaar Status.
Step 2: Enter your PAN and Aadhaar Number, and click View Link Aadhaar Status. On successful validation, a message will be displayed regarding your Link Aadhaar Status.
Q. How can I change my PAN card details online?
A. Visit the NSDL PAN website or the UTIITSL website. Select the ‘Change/Correction in PAN card details’. Enter the ‘PAN Card’ number, fill in the other details, and click the ‘Submit’ button. Enter the required details on the form.
Q. How to open the NSDL PAN PDF file?
A. To get access, users should input their password. The PAN card password is a password to open the e-PAN card PDF. This password consists of your date of birth or date of incorporation as written in your PAN card application form in the DDMMYYYY format.
Q. Can we check the details of the PAN card?
A. To check your PAN Card details online in India, you need to visit the official website of the Income Tax Department, select the ‘Verify PAN Details’ option, and submit the necessary details.
Q. Can we link Aadhaar with PAN card online?
A. Step 1: Go to the Income Tax e-filing portal. Under quick links, click on the ‘Link Aadhaar’ tab.
Step 2: Enter your PAN and Aadhaar number and click the ‘Validate’ button.
Step 3: Enter your name as per your Aadhaar card and mobile number and click the ‘Link Aadhaar’ button.