What is NSDL?
The National Securities Depository Limited is a financial entity set up to hold securities in the form of tangible or non-physical certificates. It's like a bank account system for securities like bonds and shares, in the form of either tangible or intangible certificates. It was set up to facilitate the fast transfer of securities. Since all transfers are now done electronically, it saves a lot of time. The NSDL maintains Demat accounts in which financial securities are held in electronic forms.
The benefits of holding an NSDL Demat account
1. No bad deliveries: The quality of assets can be easily examined as they are held in electronic form in the Demat account.
2. Elimination of physical certificate risks: There is no risk of theft, destruction, damage or mutilation to certificates.
3.Elimination of Stamp Duty: Securities transferred through depositories have no stamp duties.
4. Immediate transfer and registration of securities: Once the security is credited to the investor's account, he becomes the legal owner of that security. The arduous process of sending it to the company registrar to transfer ownership and all the risks involved with it are eliminated.
5. Faster settlement and more liquidity: In the case of NSDL, settlement is done on the 2nd working day from the trading day.
6. Reduced paperwork: Back-office paperwork by brokers is reduced along with the brokerage charges. Additionally, it eliminates the need to maintain many trail documents for a transaction.
7. Status reports: Statements detailing transactions and holdings are provided regularly.
8. Easy transmission and change in investor details: Shares held in the Demat account can be easily transmitted by presenting required documentation, and it reflects in the databases of all companies where you are registered as an owner of securities. Furthermore, investor details can also be changed by providing the documentation and informing the Depository Participants.
Services provided by NSDL
1. Basic Services
As per the Depositories Act 1996, the NSDL provides basic services including Demat account maintenance, transfers for trading accounts settlements and nominations. To avail these services, a depository account with Depository Participants, entities such as banks through whom the services of NSDL reach the investors must exist.
There are three types of depository accounts:
a) Beneficiary
b) Clearing member
c) Intermediary
The following services are provided for these accounts-
a) Dematerialization and rematerialisation of physical certificates.
b) Market transfer: Trade of securities held in Demat form with the demat account app
c) Off-market trade: Trades that are not cleared through the Clearing House of the exchange.
d) Inter-depository transfer: Transfer of securities from one depository to another.
e) Transmission: Devolution of title to shares, other than transfer. For example, in case of death.
2. NSDL CAS (Consolidated Account Statement)
This single statement of all investments in single or joint names enables all subscribers to electronically access their financial assets as part of a single Demat account.
3. Value Added Services
a) Hypothecation of securities: For availing of credit facilities, the securities can be collateral as long as both borrowers and lenders have NSDL Demat accounts.
b) Automatic delivery of instructions.
c)Dividend distribution: Cash corporate benefits such as dividends can be distributed to shareholders
d) Lending and borrowing: Under the Securities Lending Scheme 1997, lending and borrowing of securities can be carried out by intermediaries registered with SEBI.
e) Allotment of public issues in electronic form.
f) SMS alert: Demat account holders can receive alerts for all transactions at no charge.
g) E-services
- SPEED-e
- IDeAS (Internet-based Demat Account Statement)
- STEADY (Securities Trading Information Easy Access and Delivery)
- Depository Account Validation (DAN)
- SPICE (Submission of Power of attorney based Instructions for Clients Electronically)
- SIMPLE (Submission of Instruction through Mobile Phone Login Easily)
Conclusion
India's capital market, which is over a century old, was always very active. However, due to paper-based settlements, it had some drawbacks such as bad distribution, delayed execution of transition, etc. The Depositories Act, 1996, provided for the creation of Security Depositories in India for managing securities. NSDL is India's first & largest depository. Established on 8th November 1996, its primary purpose is handling securities held in the Indian capital market in a dematerialized form, and it has made the process easy and convenient.