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If you have ever wanted to invest or start trading shares, you must have been recommended by people to open a demat account. A demat account is short for dematerialisation account. This account makes the process of holding investments like shares, securities, bonds and mutual funds easier. So, what exactly is a demat account? We’ll learn about it in this article. Additionally, we will also learn about the types of demat accounts which can be opened in India.
Demat Account, or dematerialisation account, is a kind of digital account that can safely store securities in an electronic form. The securities may include shares, bonds, mutual funds, debentures among others. Many stock broking companies in India offer demat accounts.
Dematerialisation refers to the process of converting physical securities into digital formats. This transformation eliminates the need for physical documents and enables investors to hold and trade securities in an electronic mode.
Due to dematerialisation, all the vulnerabilities related to physical certificates such as loss, theft, or damage are eliminated. Hence, it offers a more secure and efficient way to store, manage and transfer securities. In addition to this, the market integrity is enhanced due to the transparency of electronic records.
To understand how a demat account works or its purpose, it is necessary to learn about its key features:
A demat account provides easy access to all your investments and statements through net banking.
Depository participant (DP) assists in converting all your physical certificates to electronic form.
Demat accounts use quick and simple methods to receive dividends, interest or refunds.
It uses an electronic clearing service for updating investors’ accounts with bonus issues, public issues, stock splits, etc.
Demat accounts have simplified and hastened the process of getting money by selling shares.
A loan can be availed after securities held in demat account.
Dematerialisation account’s certain amount or type of securities can be frozen for a certain time period. Eventually, this stops the transfer of money from any debit or credit card into the account.
The depositories in India allow investors to open four different types of demat accounts, namely, regular demat account, basic service demat account (BSDA), repatriable demat account, and non-repatriable demat account. Let’s understand each type in detail:
Most Indian citizens use a regular demat account for buying and selling securities. This type of account is provided by the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) with the help of intermediaries, such as depository participants and stock brokers.
In case of a regular demat account, the charges are based on the type subscribed, volume held in such an account and all the terms and conditions fixed by the NSDL/CDSL and depository participant.
A regular demat’s goal is to make trading options simple and uncomplicated. This means the transfer of shares must be completed within a few hours instead of weeks or months. Regular demat accounts have made it quicker and easier to change your address, phone number, and other important details.
Indian citizens having regular demat accounts can quickly and simply move their holdings from one existing demat account to another without incurring additional fees.
A regular demat account holder will need to register a new account with the identical names if they wish to transfer a shared demat account.
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The Basic Services Demat Account, abbreviated as BSDA, was introduced in 2012 by the Securities & Exchange Board of India. It was introduced in order to reduce the burden of demat charges on investors having a small portfolio below threshold of Rs. 2 lakhs. But now this threshold limit is Rs. 10 lakhs as of 2024.
According to the SEBI circular, as mentioned on Zerodha website, if the following criteria are satisfied, a demat account will be automatically classified as BSDA as of September 1, 2024: If only one demat is registered with that PAN across brokers. If the total value of the holdings in the demat account is less than ₹10,000,00.
For NRIs wanting to invest in the Indian share market from any part of the world, opening a repatriable demat account is a good option. The transaction done by them can easily be reflected in their repatriable demat account.
All NRIs can transfer money to multiple foreign nations with the use of a repatriable demat account. Nevertheless, the NRIs will need a corresponding NRE/NRO bank account in order to maintain a repatriable demat account. A Non-Resident Indian (NRI) must carefully follow all the Foreign Exchange Management Act regulations in order to open a repatriable demat account (FEMA).
In order to start a repatriable demat account, an NRI must provide his PAN Card, passport, visa, overseas address proof like rental/lease agreement, utility bills, passport size photograph, canceled bank check leaf of NRE/NRO account. All these documents must be submitted with attestation at the Indian Embassy of the country when the NRI is staying.
A non-repatriable demat account is similar to a repatriable dematerialisation account and is meant for NRIs too. However, in this type of demat account, the NRI does not hold the right to transfer funds abroad as it requires an associated Non-Resident Ordinary account, which is a type of bank account that allows NRIs to manage their income earned in India.
The NRIs who earn in both and abroad both face a lot of challenges pertaining to finances. It’s hard for them to keep a check on their bank accounts in a foreign land and send money to their home account. However, if they have NRO and NRE accounts, they do not have to face such challenges. According to RBI, an NRI is permitted to hold a paid up capital of 5% in an Indian company.
If you are interested in opening a demat account, you must upload certain documents on the trading app. These documents include the following:
Proof of identity
Proof of address
Proof of income
Proof of bank account
PAN card
Passport size photographs
By submitting the above-mentioned documents and fulfilling the KYC online, you can set up a demat account in India easily.
A demat account offers investors several benefits. Some of the common benefits include:
When investors open a demat account, they can benefit from the nomination facility.
Customers can merge their bank accounts with their demat accounts, facilitating electronic funds transfers.
As demat accounts are in electronic form, the risk of damage, theft, misplacement or forgery of physical shares is eliminated.
The electronic system offered by demat account is way simpler than the physical system, and can be completed within hours. It has reduced several time-taking activities and made the entire process so much faster.
A dematerialisation account has remote access benefits, given that investors have a registered net banking facility with concerned financial institutions.
Demat account holders with a specific unit of securities in their portfolio can choose to freeze their accounts for a certain time period. This can be beneficial when it comes to avoiding any unwanted transactions in their demat accounts.
In this blog post, we explained what a demat account is, and the various types of demat types which can be opened by Indians, including NRIs. A demat account offers a secure way to store, manage and transfer securities. By opening this kind of account, investors can easily receive dividends, interest or refunds within the due dates.
If you want to buy or sell securities in India on behalf of your clients, then obtaining a stockbroker license from SEBI is mandatory. For assistance in obtaining this license, connect with Registrationwala.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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