National Securities Depository Limited (NSDL) is a financial organization created to hold securities such as bonds, shares etc. in the form of physical or non-physical certificates i.e. in dematerialized format. These securities are held in depository accounts such as funds held in bank accounts. It facilitates prompt transfer of securities as ownership is transferred simply through book entries. This is usually done electronically thus eliminating the extra time that was taken in following the traditional practice where physical certificates had to be exchanged after a trade was completed.
The capital market of India, which is more than a century old, has always been very active. However, it had certain shortcomings like bad delivery, delayed execution of the transfer, etc. due to paper-based settlements. To curb these issues, The Depositories Act, 1996, was passed and it came into force on September 20, 1995. This act provided for the creation of Security Depositories in India for managing securities.
Securities are financial assets that can be traded, i.e., they can be bought or sold in the financial market. They are financial instruments and include equity, fixed income instruments, equity warrants, common stocks, etc. They can be of 2 types – debt and equity. Debt instruments such as bank notes, bonds, debentures, etc. are like borrowed money and hence have to be repaid. Stocks and shares provide the buyers with partial ownership of the company.