Central Securities Depository Ltd. (CSDL)

23/08/2020 1 By indiafreenotes

Central Depository Services Limited (CDSL) is a depository service that works for the Bombay Stock Exchange (BSE) and is promoted by the State Bank of India (SBI), Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Axis Bank and the Union Bank of India.

The primary function of this depository is to hold securities either in certificated or un-certificated (dematerialized) form, and it helps enable the book-entry transfer of securities up to 500 shares in physical form. However, most traders have now adapted to the electronic format for trading in securities. CDSL’s primary focus is to provide safe, useful, reliable and secure depository services. CDSL began its operations from February 1999 onwards after obtaining prior clearance from market watchdog Securities and Exchange Board of India (SEBI).

A Depository Participant (DP) offers depository services to investors. According to SEBI-issued regulations, financial institutions, banks, custodians, and stockbrokers are eligible to act as DPs. The DP is a CDSL-authorized agent who serves as a link between the account holder or Beneficial Owner (BO), the issuing company, CDSL, the BO’s broker and the Stock Exchange

Investors using depository services of the depository is known as the Beneficial Owner (BO), and they have to maintain a demat account to access the functions of the CDSL, including the facilities of dematerialization and transferring of securities. When the investor’s purchases securities, they are automatically credited to the depository account, and when those securities are sold, they are automatically debited from the investor’s depository account.

Benefits of holding demat securities in CDSL:

  • As the share certificates are in an electronic format, the investor is safe from the risk of theft, loss or damage to the physical share certificates.
  • The investor need not be skeptical about the genuineness of the securities purchased as the securities in the depository cannot be returned under objection for any reason, and it also eliminates the risk of bad delivery.
  • The securities are immediately transferred to the investor’s account as soon as the payment is transferred to the company’s account. There is no need for the investor to wait for the registration process from the company or its Registrar.
  • The stock exchanges follow the method of T+2 rolling settlement cycle, i.e. settlement of trades is done on the 2nd working day from the trade. This action is possible because dematerialized securities have paved the way for liquidity and swift transfer of securities.
  • No stamp duty is applicable for investors when transferring securities in dematerialized format.
  • Companies can directly credit their investors account in case of bonus issue or rights issue of shares.
  • Any update or changes in the personal information or transmission of the BO can be directly updated with the CDSL. A single standing instruction to the CDSL would help the investor update their details with all companies in which they have a vested interest.
  • The CDSL also sends the investor a statement that consolidates the position of all their holdings. This would enable investors to make informed decisions about their financial strategy.