Central Depository Services (India) Limited or CDSL is a depository service by the government.
Several banks like the SBI or State Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Axis Bank & the Union Bank of India promotes the same.
CDSL holds many types of Securities in electronic form. These Securities include stocks, shares, properties, etc.
It works for BSE, that is, the Bombay Stock Exchange, we have this in act since February 1999.
CDSL Full Form
The full form of CDSL is Central Depository Services (India) Limited and it is the second most famous public sector in India after NSDL.
Features of CDSL
Holding securities according to the certification forms is one of the main features of “Central Depository Services Limited (CDSL)”.
It also aids in enabling the relocation of securities and that too, up to 500 shares in physical form. The primary focus of CDSL is to provide secure and useful services for the depository.
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How CDSL Works?
A depository functions just like a bank but the only difference is that the bank keeps money whereas, in CDSL, stocks, shares, and bonds stay.
CDSL is nothing but an administrative body that saves all the deposits of investors in electronic form.
It does so only when the investor commands it to do the same using a registered DP, that is, Depository Participant.
As mentioned already, CDSL or Central Depository Services Limited focuses on providing secure and useful services for the depository participant and traders.
CDSL started functioning from February 1999 after being approved by SEBI, that is, the Security and Exchange Board of India. CDSL holds stocks, shares, equity, bonds, etc. of traders or investors.
Example related to Concept of CDSL
To understand the concept of Central Depository Services Limited or CDSL, one needs to look at an example that would clarify the concept.
When a member buys 2000 shares of reliance on any day of trading at a rate of INR 5000, the member of the stock exchange has to pay the total amount i.e. INR 5000 along with the brokerage.
Assuming that the brokerage is 500, the member of the stock exchange will pay a total of INR 5500. When the amount is paid, the shares are credited in T+1 day to the Demat account of the member.
In case the beneficiary owner or the person who purchased the shares wants to sell it, he needs to place a selling order with the member of the stock exchange. After confirmation, he can sell the share in the market.
After the Beneficiary Owner has sold the share, he then needs to sign a slip known as an advisory slip just so the share from his account can be removed.
Now, after the verification of the signature, the share is removed from the account of the Beneficiary Owner and the broker then receives his payment for the total shares, and that in turn, is credited in the bank account of the Beneficiary Owner.
How CDSL works with DP?
Depository Participant or DP is an agent of depository. It serves as a mediator between depository and investor.
According to the rules issued by the Security and Exchange Board of India, all the financial organizations, banks, and stockbrokers behave as Depository Participants or DP’s.
Beneficial Owners or BO are the investors who use depository services of the depository. These Beneficial Owners have to sustain a Demat account in order to gain control of the functions of Central Depository Services Limited or CDSL.
The functions include all the provisions of dematerialization and also, transfer of securities. When an investor buys security, it credits to the account automatically.
When the investor sells those securities, CDSL debits automatically.
How CDSL & Demat Account works together?
A Demat Account is an account that holds securities in electronic format. Every person needs to have a Demat account in order to use the services provided by CDSL or Central Depository Services Limited.
The normal formalities which we require to open a bank account are probably enough to open a Demat account.
The Demat account is very beneficial for using the privileges of Central Depository Services Limited. It is also very useful for trading stocks and securities.
Benefits of CDSL
Here are few benefits which Central Depository Services offers –
- The main benefit of CDSL or Central Depository Services Limited is that, since it stores everything in electronic format, chances of loss or theft is very less. The certificates can’t be damaged, as well.
- The investors don’t have to worry about stamp duty in order to transfer securities in dematerialized format.
- The investor doesn’t have to worry about the realness of the securities bought because the securities that are present in the depository will never be returned, no matter what the reason for objection is. This also puts an end to the possibility of bad delivery.
- As soon as the payment is sent to the account of the company, the securities are sent to the account of the investor. The investor doesn’t have to wait for the whole process of registration.
- With the help of this, companies can straightaway credit the accounts of investors in case a bonus issue arises. This can also be done in case of rights issue of shares.
- The Central Depository Services Limited also conveys a statement to the investor. The statement combines all of their holdings. This aids in the decision-making process of the investor regarding their financial strategy.
- The tech part of Central Depository Services Limited is very sophisticated.
Concerns related to CDSL
- The people living in rural areas are not aware of Central Depository Services Limited. It is a depository service that saves their certificates in electronic form.
- All the investments made are in the Demat account and are in digital format. All the money and transactions involved in it are in the eyes of the government.
CDSL – Conclusion
With the modern updates of the stock market and the globalization of the economy, the Indian market has introduced foreign investments and Central Depository Services Limited has helped in this a lot.
A large number of people are with CDSL just to open a Demat account in order to invest in trading and finances.
Learning the process of investing in foreign stocks helps a trader to invest in stocks in a planned way. This increases the chance to earn a huge profit.
Foreign investment has made an easy way for the investors who are thinking of investing in stocks.
In the last few years, there has been a phenomenal rise in the index of exchanges which proves the importance of CDSL or Central Depository Services Limited.
Almost all the investors and traders can be successful. They can if they take the help of the services of CDSL or Central Depository Services Limited.
It’s a way for the traders and investors to prosper. CDSL or Central Depository Services Limited also aids in enabling the relocation of securities.
That too, up to 500 shares in physical form. The primary focus of CDSL is to provide secure and useful services for the depository.
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