Playing Devils advocate, your assumption seems to be that financial mkts means ‘stocks’. Could it not be that ‘Indians’ access more of MF’s which then would not be under CDSL? CDSL may be a good stock but would CAMS not be an even better alternative to it? Also fee that CDSL can charge is fixed with little pricing power. Additionally given that NSDL is another player, what is it needed for them to take mkt share out of CDSL? In other words, why retail brokers are not using NSDL.
Sorry lots of questions which I am looking for some clarity.
CDSL is a depository. It is like a bank for holding digital certificates. It can hold shares, mutual funds, insurance or commodity investments in digital format.
When a mutual fund buys shares it also holds them in depository only. It can be NSDL or CDSL. Mutual fund turnover will create value for CDSL also.
CAMS is mutual fund transfer agency. Their profits are linked with mutual fund investing only not with direct equity investing. They also don’t have pricing power.
NSDL caters more to institutional investors and CDSL to retail investors at present. Growth in retail investors have benefited CDSL immensely. Brokers catering to retail investors prefer CDSL and switching cost will prevent them from shifting in future.
Great . Thankyou for your inputs. However, would MF decide on the despository or is it the brokerage firm? Sorry I thought it was decided by the brokerage, isn’t it. Also can a retail investor find out where does MF hold its depositories. Additionally would MF not be classified as institutional investors and hold it with NSDL, assuming that they decide the depository?
Brokerage firms will decide the depository of its clients ie retail investors. Mutual funds will decide their depository ie shares bought into the fund.
MF being institutional will most likely have NSDL account. The retail investors buying direct MF will hold the MF units in their CDSL account.
CDSL is getting the benefit of higher retail participation, direct mutual fund investing and unlisted companies changing from physical to demat shares.
To invest in a mutual fund, it is not necessary to have a Demat account with NSDL or CDSL. An investor can hold mutual fund units in paper format or directly with AMC. Though investors invest in mutual funds through brokerage platforms, these brokerage platforms mostly sell regular plans. There is an increasing number of investors, who don’t use brokerage platforms but invest in direct plans of mutual funds. If mutual fund investors use more direct plans through AMC websites or platforms like mfuonline.com, CDSL may not benefit from an increase in mutual fund penetration. CAMS continues to benefit from mutual fund penetration whether the investor invests in regular plan or a direct plan.
Thankyou for your inputs. I have few questions, I am trying to figure out how will invst gwth into stock mkt affect CDSL or CAMS? One thing is clear that CAMS with its 70%+ mkt share makes money in any MF transaction equity, debt or hybrid. It is a fee for every transaction.
However for CDSL, as you have indicated they have competition from NSDL, AMC themselves as well. If mkt trend for invst is via brokerages CDSL gains, if it is via AMC’s then maybe but not necessarily. There are more unknows for CDSL versus CAMS.
Is this a reasonable summary?
Good questions. Can you please put some comparable data on CDSL vs CAMS about acoount opening, charges earned by both and growth. This will benefit all.
I was researching about CDSL and NSDL, and had a doubt.
- There seems to be a conscious strategy of NSDL to go for institutional clients vs CDSL on retail? And with debits based on transaction fee - Is there any explained reason NSDL not going after certain DPs and BO accounts
Also, a separate question - Do the depositories have any control on which exchanges they can execute the trade in/Is it done by the investors? I am trying to understand if growth of accounts in CDSL has any impact on growth of BSE transactions
I did some basic work on CAMS - Their pricing power is almost zilch, and there are fairly fixed costs for the company including support, data handling etc., The profit margins indicate that between CDSL and say CAMS (Cams is nearly half of CDSL)
What you may want to consider is also the non-transaction based revenues of CDSL, and which is recurring. That is quite a sizeable portion of their current revenues. Yes, transaction revenues can play a huge part in depositories business when transactions increase really high like this year (Depositories get paid transaction revenues on # of debit transactions - So increased short term investing will benefit)
hi,
- NSDL is the only depository given permission by SEBI to handle FPI demat accounts. It also has a bulk of the bank accounts (demat accounts of banks where pledged shares are held).
CDSL is much more nimble by going after retail accounts and a lot of its growth from last 3 years has come largely from Zerodha (they have tied up with CDSL only)
- Although CDSL and NSDL are owned by BSE and NSE respectively, there is zero link / influence exercised by the exchanges. CDSL deals with only the broker and the investor.
There is also a fundamental difference in the way the technology is architected for CDSL and NSDL.
A very high level overview is( haven’t done detailed study due to lack of time)
CDSL is more fintech style with an open source, pay as you go, open api architecture and NSDL is more proprietary and walled garden with a higher initial set up cost . In simpl words NSDL tech is not internet scale friendly
CDSL has been able to grow with the likes of all retail brokerages simply because of this.
NSDL has more institutional power and has higher value of trades going through and has the more lucrative segment of the market.Sooner or later NSDL will come after the CDSL business and move to a Similar architecture.
Unless of course CDSL scales up massively with zerodha, groww, Paytm and other such fintechs while NSDL Responds.
Something which I saw today on my broker account. Now there is option of MF units to go to demat rather than held with Registrar and Transfer agents.
We know how big MF industry is and now this is not just stocks play but also in future it’s value migration from anything that can be help in physical form to demat form.
This option is not new. It’s been there since a long time.
Yes you are right. I came to know about this recently but seems to have been for long now. If I subscribe to MF through Zerodha Coin, the units will be in demat and when one sells it needs to pay the charges similar to stocks. I dont think this is the case if one subscribes to units directly from AMCs
But you are right. This will surely grow
But for keeping MF units in Demat, there are no charges. Zerodha billed 6rs previously when you sell MF unit, but now there are no charges
Why not invest directly with the fund? ICICI Direct invests in Regular Plan but one can choose the Direct Plan from the fund website which earns higher return.
But I think there is a DP charge; Zerodha is the broker, he may not charge but the DP may for units exiting. There’s a separate line item in your capital gains report that has DP charges for all the stocks you sell right? I believe it might be similar. That’s why I still do it on MFUonline and RTAs and not demat. Besides there are annual charges for the demat account.
I found this and I cannot vouch for the veracity of it
For normal retail people, Buying Direct MF in AMC website or any other 3rd party websites like groww, paytmmoney etc., and Holding the MF units with AMC/registrar is good because there is
No annual AMC charges.
Mostly traders hold the MF units in Demat form since, they can pledge the MF units for margin requirements in F&O after certain % of haircut.
In this case, you have to pay AMC charges for holding in Demat form. For eg: approx. 300rs to Zerodha yearly.
Previously, Zerodha charged monthly 50rs in coin for holding MF units in Demat form and also when you sell the holdings, you will be charged some amount which is similar to the charge paid when you sell your stocks for delivery.
But these are waived off now, so the only thing is yearly AMC charges for has to be paid.
(If I remember anything, I will add it in the same thread)
Exactly, in demat form, you pay annually to maintain the units with the DP. That’s a small tax you can do without in addition to the TER ones you pay to the MF. A paisa here, a paisa there, soon there’s no profit in the demat account.