Depositories in India
To understand the NSDL demat account, you need to know about two established Depositories in India.
A depository is a government organization that secures your financial securities. like shares, mutual funds, bonds electronically dematerialized form, and facilitate trading them in stock exchanges through its registered agents. A depository is a connection between the companies issuing financial securities and the investors, but indirectly.
After the introduction of online trading and the depository system under the Depository Act, 1996. The need for a legal framework brought depositories into existence. The Depository provides a legal framework to the Demat services. Besides the SEBI (securities and exchange board of India), a Depository register regulates. and inspects depository participants (DP) offering Demat services in the stock market.
It offers its Demat services to investors and allows them to create demat accounts through its registered members. One of its services is a demat account where you can hold your numerous financial securities electronically.
What is an NSDL Demat Account?
Two depositories help to manage the automated trading system in India –
The NSDL (National Securities Depository Ltd)
The CDSL (Central Depository Services Ltd)
When you open demat account with a member of NSDL, it is an NSDL Demat account.
You can not open a demat account with any two depositories directly. Instead, you need a depository participant (DP) or registered stockbroker. In the depository system, a DP is the representative of investors in the stock market.
These are the registered and authorized agents of the Depository to offer demat account and other demat services on behalf of the Depository. These agents can be individuals, banks, financial institutions, and NBFCs (Non-banking Financial Companies).
Among two Depositories in India, NSDL AND CDSL, NSDL is the oldest and largest depository. NSDL is the first depository to offer demat and its founding year is 1996.
Benefits of NSDL Demat Account
Depositories offer a sense of security to investors. Here are the benefits of the NSDL Demat account:
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Elimination of Risks
Investors need not worry about bad delivery in the depository system based on demat account. It was a big issue in the offline trading system. Investors had to face the uncertainty of the quality and quantity of financial securities purchased. NSDL, through its demat account, ensures investors for their quality and quantity of financial assets.
Physical securities are associated with security risks, like theft of share certificates, damage of certificates, duplicate certificates, etc. Such problems are not associat with the depository environment.
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Quick Transfer
The online trading system fastens the transfer process. Once the securities are debited/credited to the investors’ Demat account, there is no need to inform the company’s registrar separately. When the stock market operate on the grounds, the investor has to notify the company’s registrar regarding the trade and changed ownership. It was a process of three to four months that increased the risk during transit, delayed the opportunity, and increased the risk of loss.
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Faster Settlement Cycle
Transactions can be settled quickly for Demat-based investments. Now the stock exchanges follow the T+2 (Transaction + 2 days) settlement cycle for quick transfer of securities. It means a trade takes only two days to be settled after the trading day.
- Automatic and faster disbursement of corporate benefits
NSDL demat account automatically allows you to receive corporate benefits like rights, bonuses, etc. Thereby, you can avoid the risk of losing such benefits and faster disbursement.
- Reduction in brokerage cost
Trading brokerage in dematerialized securities is much lower than offline brokers. Online brokers registered with Depository have eliminated their back-office cost that automatically reduces the brokerages.
- No problems associated with the change of investors’ address
If you change your residence, you need not change the address with each company you have invested in or to the registrar. You just need to inform your NSDL registered stockbroker and provide the relevant documents. It will automatically register in the companies’ database where you hold the securities.
- Easy transmission of demat shares
The transmission process to legal heirs/nominees is more convenient with a Depository registered stockbroker’s demat account. You need to submit the documents to your stockbroker only. In contrast, you need to correspond with each company where you hold shares for physical securities.
Thus, get ready with an NSDL Demat account and get benefit from the stock market opportunities. You can open free trading and demat account simultaneously with a registered broker.
