Founded as of 8th November 1996, the National Securities Depository Limited (NSDL) is India’s largest central securities depository. It is based in Mumbai and was the brainchild of a national economic group that was focused on building a robust system to handle securities that are used in its dematerialized format in the Indian market.
NSDL plays an important role, that of a mediator and staunch supporter of brokers and investors who ply their trade in the Indian financial market. NSDL was founded as a counter to the paper-based systems of old, that were imperfect and prone to errors.
NSDL is the coming together of some of the most influential financial organizations in India as promoters and stakeholders. Leading the pack are the Industrial Development Bank of India (IDBI), Unit Trust of India (UTI) and the National Stock Exchange of India Limited (NSE). Each of these entities is an influencer in the spheres of developmental banking, mutual funds and stock exchange respectively. Alongside these, the following banks are principal shareholders in NSDL-
- Axis Bank
- Citibank
- Deutsche Bank
- HSBC
- State Bank of India (SBI)
- HDFC Bank
- Union Bank of India
- Standard Chartered Bank
- Dena Bank
- Canara Bank
- Oriental Bank of Commerce
Why NSDL?
A simple question, yet the associated implications are enormous. Listed below are the various benefits of subscribing to the National Securities Depository Limited (NSDL)-
Bad Deliveries, No More- Traditionally, a buyer in the Indian financial market was expected to take the massive risk of undertaking a transaction without an actual confirmation of the quality of the assets to be purchased. This is not a problem in the case of a depository platform (as displayed by NSDL) wherein after the investor’s holdings are dematerialized, there is no question of them being ‘under objection’ and thus, the probability of bad delivery is taken right off the table.
Stamp Duty Isn’t a Consideration- The common factor in almost all traditional means of transfer of securities, stamp duty isn’t required when securities are transferred in the depository system. Stamp duty isn’t necessary in the case of debt instruments, mutual funds and equity shares.
Quick Turnarounds and Faster Settlements- Faster turnover of stocks is assured thanks to the adoption of a settlement cycle wherein trades are settled on the second working day from the actual trade day. This move also ensures greater liquidity with the investor.
Problems From Paper, Eliminated- In earlier days, dealing in securities with paper certificates led to a lot of obvious problems. These certificates could be stolen, lost, subject to atmospheric and weather conditions and accidentally or intentionally mutilated/destroyed. With depository systems and their predominant reliance on online solutions, such paper-based problems are a thing of the past.
Lightning Fast Transfer and Registration of Securities- Traditionally, after purchasing the securities, the investor had to forward the same to the company’s registrar to ensure that the change of ownership was duly registered and recognized. This was a time consuming and patience sapping procedure that usually took 3-4 months to complete as compared to the 2 months stipulation listed in the rule books. This meant that investors were cutting it close as far as registering their purchased securities on time is concerned. Thankfully, this isn’t a concern in the depository environment wherein as soon as the payment is confirmed, the concerned securities are moved to the investor’s account and he/she is considered the legal owner of the transferred securities. Naturally, investors prefer this fast, complication free and scalable system as compared to the rickety option from the days of old.
Limited Paperwork, Files and Folders- Apparently, doing things online is good for the rainforests of the world. Online transaction of securities lead to smaller paper trails, non-existent files and folders. And of course, everything is available at the click of a few buttons and there is no need to maintain an extensive offline repository of associated literature.
Stay in the Loop with Periodic Status Reports- The depository ecosystem affords the investors regular updates with regards to their securities and transactions undertaken. This is desirable from the investor’s end as it allows him/her a greater understanding of the procedures in play and the adjustments that he/she must undertake for a profitable future.
Quicker Disbursement of Non-Cash Corporate Benefits- A major advantage that the NSDL system offers the investor is the quick transfer of non-monetary corporate benefits (Eg- bonus, rights, etc) to his/her account. Since this happens through the online media, the risk of loss of paper-based certificates is nullified and the actual transfer happens in a quick, safe and accountable way.
Broker Friendly- If you are an investor dealing in dematerialized securities, the broker interacting with you is likely to reduce the applicable brokerage charges. This happens because operating in the depository environment eliminates the costs incurred in handling lengthy paper trails and also, personally eliminates the risk faced by the broker as the introducer. Win-win situation for the both of you.
Changing Addresses is Easy- In the earlier system, if the investor were to change his/her communication/business address, the same had to be updated with the company/registrar through a lengthy and paper dominated process. Today, thanks to the depository system, all that the investor has to do is to inform his/her concerned DP about the address change, supply the requisite documents and relax. The change is reflected in the individual database of all the companies wherein the investor is listed as a registered owner of securities.
Transmission of Demat Shares, Simplified- In case of NSDL, the transfer of securities held in the demat account involves the simple provision of the requisite documents to the concerned DP and said the transmission is completed smoothly and on time. However, in case of the traditional physical securities, the nominee/ surviving joint holder(s) must communicate with individual companies where the shares are held to affect their transfer.
Sale of Securities on Behalf of a Minor, Simplified- The designated guardian responsible for the minor isn’t required to seek the approval of the court of law when selling demat securities on behalf of said minor.
Services offered by NSDL
Broadly, the operations undertaken by NSDL are grouped under three sections, as listed below:
Basic Services- Aptly, these include some of the basic facilities, such as account maintenance, market transfers that facilitate trade settlements, dematerialization, rematerialization, nomination or transmission, off-market transfers, etc. The exact nature of such basic services are defined by the Depositories Act and the same are targeted at investors, brokers, banks and other securities issuers who participate in the Indian financial market.
Value Added Services- Aside from its core competencies of electronic custody and trade settlement services, NSDL also offers special value-added offerings including delivery of securities (automatically, to the concerned clearing corporations), hypothecation and pledge, lending of stocks, online services such as SPEED-e and IDeAS, distribution of cash/non-cash corporate benefits, etc. NSDL is known for its electronic innovations in this complicated field, including the provision of a system that allows brokers to transfer contract notes to fund managers/custodians through the online media. This value-added service is called STEADY and has been an NSDL staple since 30th November 2002.
NSDL Consolidated Account Statement (CAS)– In a bid to help subscribers access all their financial assets, electronically, as part of a single demat account, NSDL offers its much appreciated NSDL Consolidated Account Statement (CAS) option. The NSDL CAS statement includes references to a number of popular instruments in the securities market, namely mutual funds, investments into equity shares, bonds, government securities that are held in demat, debentures, instruments concerning the money market, etc. The NSDL CAS statement applies, provided you are the primary/sole holder of the concerned single/jointly owned investment account. NSDL CAS is a popular tool as it allows the investor an easy, reliable and fast option to keep track of his/her investment portfolio and make informed financial decisions in the future.
Applicable fees for Various NSDL Services
The following is a comprehensive listing of all the major/minor charges applicable for the various services offered by NSDL to its subscriber base, namely Depository Participants and Issuers:
Applicable Fees on Depository Participants
| Service/Function. | Applicable Charges. |
| Entry fees | Rs 25,000 (Non-refundable) |
| Settlement fee | Rs 4.50 per debit instruction |
| Pledge fee | Rs.25 per instruction for creation of pledge/hypothecation |
| Custody fees | -Nil- |
| Fee for dematerialization of securities | -Nil- |
| Fee for rematerialization of securities | Rs.10/hundred securities or part thereof, or a flat fee of Rs.10 per certificate (whichever is higher). Note- No rematerialization fee shall be charged for Government Securities. |
| Minimum fee | Rs.1,00,000 (if fee charged to the Participants is less than this than the difference will be charged thereof). |
| Security fees | Each Participant must pay an interest-free refundable security deposit of Rs.10 lakh. However, Clearing Corporation/House of a Stock Exchange will be exempt from this. |
Applicable fees for Issuers
In the case of an Issuer, the annual custody fees apply at the rate of Rs.8 per portfolio (ISIN Position) in NSDL, provided the minimum amount (plus service tax) is as listed below-
| Nominal Value of Securities Admitted. | Amount. |
| Lesser than or equal to Rs.5 Crores | Rs.6,000 |
| Above Rs.5 Crores but less than Rs.10 Crores | Rs.15,000 |
| Above Rs.10 Crores but less than Rs.20 Crores | Rs.30,000 |
| Above Rs.20 Crores | Rs.50,000 |
Safety of securities with NSDL
When speaking of any financially relevant system, the concept of safety in terms of security offered to the participating members, the monies involved and the transmission procedures takes center stage. In the NSDL ecosystem as well, a number of precautions are maintained in order to ensure the safety of the investor holdings. The following list illustrates the majority of these safety protocols-
- SEBI (Securities & Exchange Board of India) is the watchdog that ensures that when selecting Depository Participants (DP), only credible entities are selected. Aside from SEBI’s evaluation, the proposed DP must also pass the strict evaluation conducted by NSDL itself.
- Every enacted transaction is duly recorded on the NSDL’s central server and the individual databases maintained by the various business partners.
- All investors receive periodic account statements from their respective DPs, thereby allowing them complete control over their individual securities portfolio.
- NSDL conducts regular checks into the activities of DPs as well as the R&T Agents.
- An interesting precaution is NSDL’s initiative to forward account statements to a random list of investors as a secondary reference. The investor is now able to compare between the statements issued by his/her DP against the one issued by NSDL and point out discrepancies if any.
- Without verified instructions from the Client, DPs are not allowed to action any debit or credit requests to the concerned account.
- Exchange of data between the NSDL and its business partners is strictly protected by encryption in accordance with the latest technologies available in the market. In the case of NSDL, the implemented encryption systems are more robust than the ones prescribed by SEBI.
- Freeze Facility allows an account holder to freeze the securities existing in his/her depository account for as long as he/she wants. Freezing an account puts an effective stop to any desirable/accidental/malicious activity that is likely to occur with the otherwise active account. By requesting the DP (via the proper format), an account holder can activate any of the following freeze options-
- Debits ONLY
- Debits & Credits
- Freezing just an individual ISIN in the account
- Freezing a specified number of securities that exist as part of an ISIN in an account
- Grievance Redressal is an important action point for the NSDL. All concerns and grievances raised by the investor must be suitably addressed by the concerned business partner. However, if the business partner isn’t responsive or takes a lot of time to acknowledge the problem, then the investor can directly approach the NSDL. The complete contact information for NSDL is available on its official website.
- In order to compensate investors for the possible loss that could be incurred by them due to such unforeseen or accidental mistakes as omissions, errors or loss due to the concerned DP’s negligence, NSDL has a potent insurance policy in place.
- NSDL is very particular to ensure that it and its business partners utilize computer hardware and software that is cutting edge and conforms to the set industry standards. These systems are only put into place after they have been subjected to strict crash tests and proofed against all possible and unforeseen contingencies.
- NSDL has taken steps to ensure that knowledge of how the depository system works isn’t a secret science. In this regard, NSDL offers the Certification Programme in Depository Operations (popularly known as NCFM certification) and requires that at least one individual from each partner DP must take up and qualify in this certification course. This is done so as to ensure that every branch of a DP has at least one individual who is an expert when it comes to depository systems and can explain the same to the local investors as and when required.
- In order to ensure that the NSDL’s online presence is available 24×7, and not impacted by any man-made or natural calamities, a disaster backup site is maintained on the ready at all times. This site features a computer that is identical to the mainframe computer and is always available to take the lead as and when the mainframe computer is rendered inoperational. Backup power in case of the failure of the main supply is also maintained.
- All the systems, hardware, software and communication networks servicing the NSDL ecosystem are periodically reviewed to ensure their effectiveness, operational strength and security.
