NSDL: About, Benefits, Functions, Services

January 2, 2023January 16, 2023 Shyam Kumar 0 Comments

NSDL stands for National Securities Depository Limited. It is a public limited company. NSDL is the first depository to be set up in India. It was incorporated on December 12.1995. It commenced its operations on November 8, 1996.

Promoters of NSDL: IDBI, UTI, NSE, SBI, Global Trust Bank Limited, Citibank, Standard Chartered Bank, HDFC Bank Limited, Dena Bank, Canara Bank etc.

Benefits of NSDL:

1) Elimination of bad deliveries:

In the depository system, once holdings of an investor are dematerialized, the question of bad delivery does not arise. In the physical environment, buyer was required to take risk of transfer and face uncertainty of the quality of assets purchased.

2) Elimination of all risks associated with physical certificates:

Dealing in physical securities leads to security risks of theft, mutilation of certificates and loss of certificates during movements through and from the registrars, thus exposing the investor to the cost of obtaining duplicate certificate etc. This problem does not arise in the depository environment.

3) Stamp duty:

No stamp duty is required for transfer of any kind of securities in the depository.

4) Immediate transfer and registration of securities:

In the depository environment, once the securities are credited to the investors account, he becomes the legal owner of the securities. There is no further need to send it to the company’s registrar for registration. Having purchased securities in the physical environment, the investor has to send it to the company’s registrar so that the change of ownership can be registered.

5) Faster settlement cycle:

NSDL provides faster settlement of trade and more liquidity with the investor.

6) Faster disbursement of non-cash corporate benefits like dividend, bonus etc.:

NSDL provides for direct credit of non-cash corporate entitlement to an investors account, thereby ensuring faster disbursement and avoiding risk of loss of certificates in transit.

7) Reduction in brokerage by many brokers for trading in dematerialized securities:

Broker provide this benefit to investors as dealing in dematerialized securities reduces their back office cost of handling paper and also eliminates the risk of being the introducing broker.

8) Better control:

Periodic status reports to investors on their holdings and transactions through SMS alert facility leads to better control.

9) Elimination of problems related to change of address of investor:

In case of change of address, investor have to only inform their DP with all relevant documents and the required changes are effected in the database of all the companies, where the investor is a registered holder of securities.

10) Elimination of problems related to transmission of Demat shares:

In case of dematerialized holdings, the process of transmission is more convenient as the transmission formalities for all securities held in a Demat account can be completed by submitting documents to the DP whereas, in case of physical securities, the surviving joint holder/legal heirs/nominee has to correspond independently with each company in which shares are held.

11) Elimination of problems related to selling securities on behalf of a minor:

A natural guardian is not required to take court approval for selling Demat account on behalf of a minor.

12) Portfolio monitoring:

It ensures ease in portfolio monitoring since statement of account gives a consolidated position of investments in all instruments.

Functions of NSDL:

a) It enables the surrender and withdrawal of securities to and from the depository (dematerialization and re-materialization).

b) It maintains investor holdings in the electronic form.

c) Effects settlement of securities traded on the exchanges.

d) Carries out settlement of trades not done on the stock exchange (off market trades).

e) Transfer of securities.

f) Pledging of dematerialized securities.

g) Electronic credit in public offerings of companies or corporate actions.

h) Receipt of non-cash corporate benefits like bonus rights, etc. in electronic form.

Also Read: How To Buy Shares [Complete Guide]

Facilities or services offered by NSDL

a) Dematerialization (converting physical certificates into electronic form) and rematerialization (conversion of securities held in Demat form into physical certificates).

b) Facilitating conversion/reconversion/repurchase/redemption of units of mutual funds.

c) Electronic settlement of trades in stock exchanges connected to NSDL.

d) Pledging/hypothecation of dematerialized securities against loan.

e) Electronic credit of securities allotted in public issues.

f) Receipt of non-cash corporate benefits such as bonus, in electronic form.

g) Freezing/locking of Demat accounts, so that debits from the account are not permitted.

h) Nomination facility for Demat account.

i) SMS alert facility.

j) Effecting transmission of securities etc.