Understand the Different Types of Demat Accounts Available in India

A Demat account is a basic necessity to trade in the Indian stock market. Without one, no trading or investment activity in securities can be carried out since the Securities and Exchange Board of India (SEBI) has made it mandatory to use a Demat account for trading in equity. For any trader or investor, it is essential to open a Demat account. Apart from the purpose of trading, a Demat account is a great way to store different kinds of securities. All securities are stored in electronic form, which makes it a secure and reliable way of storage. The different types of securities that can be stored in a Demat account are:

• Equity, i.e., shares or stocks of a company
• Bonds and Debentures
• Sovereign Gold Bonds
• Exchange Traded Funds
• Government Bonds
• Mutual Funds
• Tax-free Bonds
• Certificates of Deposits

Depositories are entities that provide a Demat account. To open a Demat account, one cannot go to a depository directly. Instead, one must approach a depository participant (DP) who will provide them with all the services a depository has to offer.

There are certain criteria an individual must fulfil to open a Demat account. These are:

• Must be a citizen of India
• Must be at least 18 years of age
• Should have a valid Permanent Account Number (PAN) card
• Should have government-issued proof to verify identification
• Must be able to provide a government-issued proof of address

Types Of Demat Account

Based on their usage and who opens the Demat account, it is bifurcated into three main types. The different types of Demat accounts in India are:

• Regular Demat Account
• Repatriable Demat Account
• Non-Repatriable Demat Account

Each one is unique in its own way, and understanding the Demat account types will help you understand which type of Demat account is applicable to you.

Regular Demat account

Among the different types of Demat accounts, this account is for the normal Indian citizen who resides in India and also trades from within the borders of India. After the introduction of this Demat account, traders and investors could carry out trading activities conveniently. Before the inception of the Demat account, one had to be physically present at the stock market to carry out trades. The settlement period for these shares was extremely long, and it came with multiple transportation drawbacks and other issues. Shares could get lost or damaged in the process of delivery, with some even being stolen. Storing physical shares wasn’t easy as they needed a separate infrastructure for it.

Due to this Demat account, trading charges have been reduced, and the eradication of postal charges has been the main contributor. The whole trading process has been made paperless, reducing the complexity of registration and trading. Data updates with regard to addresses, phone number changes, the addition of nominees, etc., can be done easily. This Demat account can be accessed from the comfort of the account holder’s home, and shares can be sold or transferred to another with the click of a button. The regular Demat account is also known as the standard Demat account.

There’s a special Demat account that is provided to retail investors known as the Basic Service Demat Account (BSDA).

Basic Service Demat Account

The BSDA provides the same services as a standard account, with the significant difference being in the charges associated with them. Maintenance charges in BSDA are zero or low compared to the standard account. SEBI wanted to increase the stock market participation of small investors; hence, they came up with the BSDA. The Annual Maintenance Charge (AMC) for BSDA is zero if the balance is under ₹50,000 and it increases to ₹100 if the balance is between ₹50,000 and ₹100,000.

The standard account enables a bunch of investors and traders to open a joining Demat account, which isn’t available in the Basic Service Demat Account. With the target of small investors, BSDA was created to promote trading from every nook and corner of the country. A BSDA account will be converted to a regular Demat account in case the value of its assets increases above ₹2 lakh. This is the major limitation of the BSDA, and hence, it isn’t an independent type of Demat account.

Repatriable Demat Account

Repatriable Demat accounts give opportunities to Non-Resident Indians (NRIs) to invest in the Indian stock market even though they do not actively reside in India. This Demat account type ensures that Indians can trade from anywhere in the world without facing any issues. The repatriable Demat account enables investors to transfer funds abroad after they have made returns on them.

The repatriable Demat account must be linked to a Non-Resident External (NRE) account. NRIs must follow the Foreign Exchange Management Act (FEMA) rules for opening a Demat account to trade in the Indian stock market. The Reserve Bank of India (RBI) also mandates that NRIs must open trading accounts with reputed institutes and must have an NRE or a Non-Resident Ordinary (NRO) account for all investments in India.

As an NRI, you must possess certain documents to open a repatriable Demat account. The documents required are:

• A copy of a PAN Card
• Passport
• Visa
• Overseas address proof [rental/lease agreement, utility bills, sale deed, etc.]
• Passport size photograph
• Cancelled check leaf of NRE
• FEMA declaration form

All these documents must be attested by the Indian embassy in the country you’re currently residing in.

The portfolio investment NRI scheme (PINS) is a great scheme that NRIs can utilise to trade in the Indian stock market.

Non-Repatriable Demat Account

Although the non-repatriable Demat account enables NRIs to trade and invest in Indian stock, it isn’t the same as the repatriable Demat account. It doesn’t let the NRI transfer funds abroad, and an NRO bank account is associated with this Demat account.

The PINS scheme enables NRIs to make investments in the Indian stock market to buy and sell securities of companies listed on the Indian stock market. Different types of investments are made under different schemes. NRIs can make use of the repatriable Demat account to invest in Initial Public Offerings (IPOs). Still, they have to make use of the non-repatriable Demat account to invest as well. It can be difficult for them to manage their income and funds, and hence, it’s advised to have both an NRE and NRO bank account to enable a smooth transfer of funds to their preferred location. NRIs can only transfer funds from a non-repatriable account after the tax is deducted at the source. With the help of the PINS scheme, NRIs can invest in equity and mutual funds through the non-repatriable account.

Conclusion

The Demat account is a basic necessity when it comes to trading in the equity market. Without one, SEBI doesn’t allow trading in stocks. As a trader or investor, you must be aware of the various Demat accounts available at your disposal. You can only have one BSDA account at any point in time with multiple regular Demat accounts. If you’re an NRI, it is crucial to make use of both the repatriable and non-repatriable Demat accounts based on your usage. Even if you’re not keen on investing, you must get assistance from a full-service stockbroker like Share India and diversify your investments with the help of the Indian stock market.

Frequently Asked Questions (FAQs)