When thinking about ways to invest your money in the stock market, you may have come across certain terms that seem too “technical” when you hear them. For a new investor, diving into the markets becomes patchy when the person does not understand the basic terminologies, which are crucial to operate in that space.
From knowing what is a Demat account, custodian participants, to knowing NSDL and CDSL, the information is a must for any investor before they actually put the money on the market.
What is a Demat account?
Your shares are stored digitally on a Demat Account (dematerialisation account). It is used to store your stocks and other securities in an electronic format.
It simplifies the process of holding your investments such as stocks, bonds, government securities and mutual funds.
What is a trading account?
A trading account is a bridge between your Demat and bank account. When an investor buys a certain number of shares, the first step is to transfer the amount from the bank account to the trading account. After the money has been credited, the transaction will be started.
Similarly, when an investor sells a certain number of shares, the amount of the transaction is credited to the trading account.
A trading account is created at the same time as the Demat account.
How to open a Demat account?
To open your Demat account, you must first select a Depository participant, for your convenience.
What is a Custodian?
Depository Participant is an intermediary between CDSL and NSDL (two custodians in India), and traders and investors. Depository Participants are also banks and finance companies.
Typically, custodians are brokerage firms that provide investors with the service of opening Demat and trading accounts along with providing a trading platform, market reports and other services.
A Depositary Participant is a facilitator for holding securities in dematerialized form and an enabler for securities transactions.
Zerodha, Motilal Oswal Financial Services, HDFC Securities Limited and Kotak Securities Limited are some examples of Depository Participants.
What is a Custodian?
A custodian bank can be compared to a bank. A custodian holds securities (such as stocks, bonds, debentures, government bonds, shares, etc.) of investors in electronic form. In addition to holding securities, a custodian also provides services related to transactions in securities.
A custodian communicates with the investors through depository participants. If an investor wishes to use the services offered by the depositary, the investor must open an account with a participant in the depositary.
What is NSDL?
National Securities Depositories Ltd (NSDL) is one of the two custodians in India.
What is CDSL?
Like NSDL, Central Securities Depositories Ltd is also a custodian.
Difference between CDSL and NSDL
Both custodians store your financial securities, such as stocks and bonds, in dematerialized form and facilitate trading on stock exchanges.
Both NSDL and CDSL maintain ownership records of financial securities. Depository Participants link investors to custodians.
NSDL has National Stock Exchange (NSE) as its primary market, CDSL’s primary market is Bombay Stock Exchange (BSE).
These custodians are regulated by a statutory body called Securities and Exchange Board of India.
Read all the latest business news here
