If you are browsing about ways to invest your money in the stock market, you might come across a few terms that sound very ‘technical’. For a new investor, diving into the markets becomes complicated when one is unable to understand the basic terminologies that are important to operate in that space.
From knowing what is a demat account to knowing about depository participants to NSDL and CDSL, information is essential for any investor before they actually invest money in the market.
What is Demat Account?
A demat account (dematerialization account) is where your shares are held digitally. It is used to hold your shares and other securities in electronic format.
It eases the process of holding your investments such as shares, bonds, government securities and mutual funds.
What is Trading Account?
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 is deposited, the transaction is initiated.
Similarly, when an investor sells a certain number of shares, the transaction amount is credited to the trading account.
A trading account is also created along with the demat account.
How to open Demat Account?
To open your Demat account, you first need to choose the Depository Participant as per your convenience.
What is Depository Participant?
A Depository Participant is an intermediary between CDSL and NSDL (the two depositories in India), and traders and investors. Depository participants also include banks and finance companies.
Typically, Depository Participants are stock brokerage firms that provide trading platforms, market reports and other services to investors as well as open demat and trading accounts.
A Depository 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 Depository?
A depository can be compared to a bank. A depository holds the securities (such as shares, debentures, bonds, government securities, units, etc.) of investors in electronic form. Apart from holding the securities, the depository also provides services relating to transactions in securities.
A depository interfaces with investors through depository participants. If an investor wants to avail the services offered by a depository, the investor has to open an account with a Depository Participant.
What is NSDL?
National Securities Depositories Limited (NSDL) is one of the two depositories in India.
What is CDSL?
Like NSDL, Central Securities Depository Limited is also a depository.
Difference Between CDSL and NSDL
Both depositories hold your financial securities, such as shares and bonds, in dematerialized form and provide trading facilities on stock exchanges.
Both NSDL and CDSL maintain the records of ownership of financial securities. Depository participants connect investors with depositories.
While NSDL has the National Stock Exchange (NSE) as its primary operating market, CDSL’s primary market is the Bombay Stock Exchange (BSE).
These depositories are regulated by a statutory body called the Securities and Exchange Board of India.
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