What Are the Different Types of Demat Accounts in India?
Investing and trading in a financial asset requires a Demat account which allows electronic transactions of securities. The Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) offer DEMAT account services in India.
There are various types of Demat accounts available in India as per the different needs of investors. Every account comes with different sets of rules and regulations which customers must follow. Let’s discuss in detail the different Demat accounts and their benefits.
What Is a Demat Account?
Also known as Dematerialised account, it provides the facility of storing stocks and other securities in electronic format. In case of online trading, you can buy and hold shares in these accounts. It thereby facilitates simple and hassle-free trade for investors.
You can hold all your investments in a dematerialised account, such as shares of companies, government and corporate bonds, exchange-traded funds, and units of various mutual funds. The introduction of the Demat account paved the way for greater inclusion of digitisation in the Indian stock market. Moreover, using Demat accounts to hold various securities has led to better governance by market regulators.
What Are the Different Categories of Demat Accounts?
Here are various types of Demat accounts that you can open in India:
- Regular Demat account
Indian residents primarily use regular Demat accounts for investment and trading. The two depositories, i.e., CDSL and NSDL, regulate and manage these accounts. However, stock brokers are responsible for the maintenance and the opening and closing process of these accounts.
To make it more convenient for investors, the Securities and Exchange Board of India (SEBI) has done away with various market stamp charges as well as restrictions on selling of shares via these accounts.
Additionally, the process of changing personal details is fast and less time-consuming in case of regular Demat accounts. Indian citizens can easily transfer their holdings from an existing regular Demat account to a different institution without incurring additional charges.
- Repatriable Demat account
This account is for non-resident Indians who wish to invest in India’s stock markets. This account facilitates repatriation of funds which is not permitted in the case of a regular Demat account.
To open a repatriable Demat account, an NRI has to strictly follow all the rules laid out by the Foreign Exchange Management Act (FEMA). Moreover, he/she has to make sure that all essential documents are attested by the Indian Embassy of the country where he/she stays.
One major benefit of this account is that you can transfer funds from this account to any foreign location under certain conditions. However, to use this account, every non-resident Indian must have a Non-resident external (NRE) and Non-resident ordinary (NRO) account.
- Non-repatriable Demat account
A non-repatriable Demat account is also applicable for non-resident Indians, but there’s a small difference. As the name suggests, any NRI cannot transfer their funds from this account to other foreign nations. In simple words, we can say that this account does not allow repatriation of funds.
NRIs must have a properly functioning NRE or NRO account linked to this Demat account for carrying out seamless and hassle-free trading.
Additionally, every Demat account offers either two or three services at once. A 2-in-1 Demat account offers the services of a Demat account and a trading account together. On the other hand, a 3-in-1 Demat account offers the services of a Demat account, trading account and bank account together.
Demat accounts have become a crucial component of stock market trading and investment. They allow you to store your securities in electronic form and are useful during trade settlement by allowing swift delivery.
Frequently Asked Questions
Is it mandatory to have a Demat account?
If you want to invest in the stock market or trade securities, it is mandatory to have a Demat account. However, it is not compulsory to have a Demat account for mutual fund investments.
What is the benefit of having a regular Demat account?
The biggest benefit of a regular Demat account is that it has no restrictions on holding and selling shares. This leads to greater efficiency and increased profitability for traders.
What are 3-in-1 Demat accounts?
It is a customer wealth management investment solution offered by various stock brokerages. Under this solution, brokerages offer you a bank account, Demat account and a trading account together.
Which entities are involved in the Demat account opening process?
Every Demat account opening process involves the participation of a banking institution, depository participants like brokerage houses, and any one of the two national depository houses of India.