It is easy to open a Demat account and Demat accounts have become popular in India as more and more Indians seek investment in stocks and other non-material assets like ETFs and mutual funds.
It is important to note that the number of Demat accounts has only grown in India, and with each passing year, that figure is higher than the previous year. In 2021, the number of Demat accounts grew by 35%.
As Indians clamour to invest in the stock market, the role of a Demat account becomes more relevant than in the past, especially in this digital age. Before learning about the types of Demat accounts you can open, it is important to get some facts about Demat accounts straight.
What is a Demat account?
Understanding what a Demat account is will result in determining which Demat account is the most appropriate for your investment needs.
A Demat account (short for a dematerialised account) is alike any other account that you store your funds in (like a bank account), only in a Demat account, your assets are stored. In simple terms, a Demat account stores your assets like stocks, bonds, etc, in a digital format.
Not only does a Demat account store your assets and securities, but it also keeps track of them and is operated based on the rules and regulations of SEBI (Securities and Exchange Board of India). Previously, assets like stocks and bonds were held in paper format (certificates, etc), but a Demat account holds them electronically.
Demat Accounts – Digital Benefits
You get a plethora of benefits by holding your securities in a Demat account, not least of which is the security of your assets held digitally. There is no room for loss or damage once your assets are held in a Demat account.
Furthermore, you must open Demat account, after choosing one from the types of Demat accounts available, with a Depository Participant (DP), a bank, or any other authorised financial institution like a brokerage.
The DP is essentially an intermediary between a Demat account holder and the depository (such as the NSDL or CDSL). Having a Demat account entails certain fees you have to pay for maintenance. Commonly, a Demat account is linked to a trading account and a bank account to facilitate the seamless transactions of buying and selling securities (or trading).
Types of Demat Accounts
Primarily, there are three types of Demat accounts available to you in India. These are categorised according to the kind of Demat account holder’s residential status:
1. Regular/Resident Demat Account
Any resident Indian holds a regular or a resident Demat account. In India, this is the most commonly held Demat account. Such a Demat account may be considered by investors who mainly hold assets and invest in equity and other securities in India.
With this kind of Demat account, investors can purchase and sell shares digitally, and ensure their safe storage. Usually, when you ask, “What is a Demat account?”, the response is a description of a regular Demat account.
While the regular Demat account is one of the most regularly used Demat accounts in India, the Security and Exchange Board of India (SEBI) has also established the Basic Services Demat Account (BSDA) for those investors who use Demat accounts less frequently and for which a high maintenance fee does not have to be incurred.
In case the total value of an investor’s holdings falls below ₹2,00,000, a BSDA may be opened instead of a regular Demat account. Within the value of these holdings, there are separate slabs for annual maintenance charges.
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2. Repatriable Demat Account
In different types of Demat account there are those accounts that can be held by non-resident Indians. Non-resident Indians can hold such a Demat account and trade in Indian securities.
A repatriable Demat account permits non-resident Indians to transfer funds overseas if they wish to. A repatriable Demat account holder is permitted to transfer limited funds abroad and has to abide by the regulations set forth by the Foreign Exchange Management Act (FEMA).
3. Non-Repatriable Demat Account
A Non-repatriable Demat Account is held by any non-resident Indian. Nonetheless, funds from this account, unlike those from a repatriable Demat account, cannot be transferred to their country of residence overseas. The funds, if any, attached to such a Demat account have to be transferred to an Indian bank account, operated in India itself.
Pick Your Demat Account Type
Once you have understood what a Demat account is, and the different types of Demat accounts available in India, you can choose your investments and Demat account accordingly.
The distinctions are important as they let you decide the type you require according to your residential status.
Nonetheless, while investing, no How Many Types of Demat Accounts are Available in India? what your residential status is, you have to understand your Demat account in more detail with respect to your DP and the charges associated with your Demat account.
Author: Sky Smith
Sky is a personal finance enthusiast and blogger passionate about helping readers navigate the world of loans and credit cards. With a focus on clear explanations and actionable tips, Sky's blog empowers individuals to make informed financial decisions.
