NISM-Series-VI: Depository Operations · Depository and its Business Partners

NSDL and CDSL: Structure and Functions Explained

Updated 11 October 2026 · Fact-checked

NSDL and CDSL are the two SEBI-registered depositories in India. Each holds securities in electronic form, runs the systems for transfers and settlement, and serves investors through Depository Participants. In the exam, learn who promoted each, how they differ in ownership and links to exchanges, and which services they provide.

Understand NSDL and CDSL: Structure and Functions

A depository holds securities in electronic (demat) form and lets you transfer them by book entry instead of paper. India has two: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited). Both are registered with SEBI under the Depositories Act, 1996, and work under SEBI regulations.

NSDL was the first depository in India. It was promoted by institutions such as IDBI (now IDBI Bank), UTI (now Axis Bank) and the National Stock Exchange (NSE). CDSL was promoted by the Bombay Stock Exchange (BSE) together with leading banks, such as Bank of India, Bank of Baroda, HDFC Bank, SBI, Union Bank of India and others. The simple link to remember: NSDL is associated with NSE, and CDSL is associated with BSE.

Investors do not deal with a depository directly. You open a demat account with a Depository Participant (DP), which is the agent of the depository. The DP could be a bank, a broker, a financial institution or similar. The depository sits at the centre and the DPs form its network.

The core functions are the same for both. They hold securities in dematerialised form, process transfers, support settlement of trades done on exchanges, handle pledge and hypothecation, pass on corporate benefits through electronic credit, and support issuers in public offers. They also help issuers and registrars by giving them beneficiary data.

Both depositories are separate legal entities and compete. Your securities can be held with either one. A security that is admitted at both can be moved between depositories through inter-depository transfer. Exam questions mostly test who promoted whom, the first-mover fact, and which functions belong to the depository versus the DP.

Key formulas to remember

Depository and DP relationship: Investor → Depository Participant (DP) → Depository (NSDL or CDSL); You hold an account with the DP. The DP is the depository's agent and connects you to the depository.
Exchange link: NSDL ↔ NSE (promoter link) | CDSL ↔ BSE (promoter link); Use this to answer promoter questions. Both depositories serve all exchanges, so settlement is not limited to the linked exchange.
First depository: NSDL = first depository in India; CDSL = second; A common one-line question. Do not reverse it.
Governing law: Depositories Act, 1996 + SEBI (Depositories and Participants) Regulations; Both depositories are registered with SEBI and regulated under this framework.

How to solve NSDL and CDSL: Structure and Functions questions

Use this method for any question on NSDL, CDSL or depository functions.

1Read the question and decide the type: history and promoters, structure, or functions and services.
2Underline the key word, such as first, promoter, BSE, NSE, agent or investor.
3If it asks about promoters, match NSDL with NSE and the institutions IDBI and UTI, and CDSL with BSE and the banks.
4If it asks who deals with the investor, choose the Depository Participant, not the depository.
5If it asks about functions, pick services done for all securities in demat form: holding, transfer, settlement support, pledge, corporate benefits.
6Eliminate options that say a depository gives investment advice, trades securities, or makes a profit by speculation. None of these are depository functions.
7Eliminate options that tie one depository exclusively to one exchange. Both serve all exchanges.
8Choose the remaining option and check it against the exact wording.

Quickest way: Anchor and eliminate

When to use it: Use when time is short in a 100-question paper and the question is a one-line fact.

Remember two anchors: NSDL = first, NSE-linked; CDSL = BSE-linked.
Spot the anchor word in the question and match it.
Cross out any option that gives a depository a trading or advisory role.
If two options remain, prefer the one that matches the Depositories Act and DP-agent structure.

Common mistakes in NSDL and CDSL: Structure and Functions

Saying CDSL was the first depository in India.
CDSL is linked to BSE, the older exchange, so students assume it came first.
Fix: Remember that NSDL started first. The age of the exchange does not decide the order of the depositories.
Thinking an investor opens an account directly with NSDL or CDSL.
Students treat the depository like a bank branch.
Fix: You open the demat account with a DP. The depository only holds records through its DPs.
Believing NSDL settles only NSE trades and CDSL only BSE trades.
The promoter link is mistaken for an exclusive arrangement.
Fix: Promoter link is history and ownership. Both depositories support settlement of trades on all recognised exchanges.
Listing trading or investment advice as a depository function.
Students mix up depository, broker and adviser roles.
Fix: A depository holds, transfers and supports settlement of securities. It does not trade or advise.
Treating the DP as an independent institution not accountable to the depository.
DPs are often banks or brokers with their own business.
Fix: A DP acts as the depository's agent for demat services and works under the depository's rules and SEBI regulations.

Worked examples

Example 1

Which of the following statements about NSDL and CDSL is correct? (A) CDSL was the first depository in India (B) NSDL was the first depository in India and NSE was among its promoters (C) Investors open accounts directly with the depository (D) NSDL handles only NSE trades

Show the solution

Option A reverses the order, so it is wrong. NSDL came first.
Option B matches both facts: NSDL is the first depository and NSE is a promoter.
Option C is wrong because the account is opened with a DP.
Option D is wrong because depositories support settlement for all exchanges, not one.

Answer: (B) NSDL was the first depository in India and NSE was among its promoters.

Example 2

Which of the following is NOT a function of a depository? (A) Holding securities in electronic form (B) Facilitating transfer of securities by book entry (C) Giving investment advice to account holders (D) Passing on corporate benefits such as dividends and bonus credits electronically

Show the solution

Check each option against core depository services.
A is a core function: securities are held in demat form.
B is a core function: transfers happen by book entry.
D is a core function: electronic credit of corporate benefits.
C is not a depository function. Advice belongs to registered investment advisers.

Answer: (C) Giving investment advice to account holders.

Exam tips

Memorise the pair: NSDL as first and NSE-linked, CDSL as BSE-linked. Most promoter questions reduce to this.
In 'who deals with the investor' questions, the answer is the Depository Participant.
Watch for options that give a depository a trading, broking or advisory role. These are almost always wrong.
On a paper with negative marking, skip a question only if you cannot eliminate any option. Fact questions usually allow elimination.

Practice questions from Depository and its Business Partners

NSDL and CDSL: Structure and Functions: frequently asked questions

What is the difference between NSDL and CDSL?

Both are SEBI-registered depositories providing similar services. NSDL was the first depository and is associated with NSE and institutions like IDBI and UTI. CDSL is associated with BSE and a group of banks. For investors, the services are largely the same.

Can I hold shares in both NSDL and CDSL?

Yes. You may have demat accounts with DPs linked to either depository. Securities can also be moved between depositories through inter-depository transfer where the security is available at both.

Who are the promoters of NSDL and CDSL?

NSDL was promoted by institutions including IDBI, UTI and NSE. CDSL was promoted by BSE along with banks such as Bank of India, Bank of Baroda, HDFC Bank, SBI and Union Bank of India.

What functions does a depository perform in India?

It holds securities in electronic form, enables transfer by book entry, supports settlement of exchange trades, handles pledge and hypothecation, and credits corporate benefits electronically. It works through Depository Participants.