Types of Demat Account
A Demat account plays a crucial role in building a core relationship between every investor, a depository participant (DP), and the depository. Therefore, it is essential to open a Demat account to buy, sell, transfer, and hold financial assets in today’s time. There are different types of Demat accounts available that the investors can use to fulfill their various financial needs or objectives in the market.
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How Many Types of Demat Accounts in India?
The market regulator, securities, and Exchange Board of India (SEBI) allows the three types of Demat accounts. The investors can open any of these accounts if they fulfill the requirements as per the SEBI guidelines. Here are the following three different types of Demat accounts available in India.
- Regular Demat account
- Repatriable Demat account
- Non-repatriable Demat account
All three accounts have different features that help meet different kinds of demands. Every investor may not have the same type of requirements. Investors need a dream account to fulfill their needs. Let us discuss each type of Demat account available in India.
Regular Demat Account
The Regular Demat accounts are the types of Demat accounts that are generally for the citizens of India. You can open a Regular Demat account on any two depositories, such as National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). To open a Demat account on such platforms, you will have to approach a depository participant (DP). The depository participant functions as a link between the investors and the depositories. They facilitate the opening of the Demat accounts. A DP can be any financial institution such as a stockbroker, bank, or other non-banking financial institution. They obtain authorization from the market regulator, Securities and Exchange Board of India (SEBI), for providing these services to the investors.
For a Regular Demat account, the charges depend upon the following factors-
- The type of Demat account subscribed.
- Volume in the Demat account.
- All the terms and conditions as mentioned by the depository and the depository participant (DP).
For more straightforward trades and investments, a Regular Demat account came into existence. Now, the investors and traders can complete the transfer of shares within just a few hours. Therefore, it is convenient for traders and investors to use the Regular Demat accounts and handle all your investments. Before the introduction of Demat accounts, the entire process was completely manual, involving huge paperwork. In addition, investors received the security certificates also in physical paper form. This led to errors, missing certificates, forgery, etc. All these problems were reduced significantly with the use of Demat accounts. Moreover, you can be free from fear of theft, damage, and robbery with a Regular Demat account, as you can store your shares and other securities in it electronically.
The digital method also simplified the process making the purchase and sale of assets very convenient and quick. In addition, it is cost-effective due to paperless activity. As a result, the investors and traders can save a good amount of money on share sales and purchases. You can change your address, phone number, add or change the nominee, and more online. Most of the depository participants provide online services through their online platforms. If you are a citizen of India, you can transfer your investments from an existing Demat account to a new institution without paying an extra charge.
Basic Service Demat Account (BSDA)
The Basic Service Demat Account (BSDA) is similar to a regular Demat account. One can consider it as a standard Demat account too. The only significant key difference between a BSDA account and the standard Demat account lies in the charges the investors pay. The depository participants (DP) take certain charges in return for the services they offer with the Demat account. On opening a Basic Service Demat Account, the investors need not pay the maintenance charges in some instances. For example, the value of their total holdings is below Rs. 50,000, they do not have to pay anything for maintenance charges. However, in case their total holdings value of the investors lies between Rs. 50,000 and Rs. 2 lakh, Rs. 100 charge is applicable.
The other difference between the BSDA and the regular Demat account is that the investors don’t get the joint account facility with BSDA. This feature of a joint account is available with a regular Demat account. There can be only one owner of the account if he opens a BSDA account. The SEBI brought this concept of a Basic Service Demat Account in order to promote investments from small investors. The BSDA account will encourage them to participate in the share market and start their financial journey. Many small investors prefer to stay away from the share market because of a variety of charges involved. This will benefit not only them but also the financial market and the country as a whole.
Although the BSDA account is beneficial for small or first-time investors, it does have some limitations. There is a restriction on the number of assets an investor can hold. With the account, the investors cannot hold investments worth more than two lakh at any particular period. The investors should also note another thing concerning this. If the value of the assets in their BSDA accounts increases, they will not get the BSDA account anymore. For example, let the value of someone’s assets be 1.2 lakhs. After a year, there is an appreciation in the value of the assets. They are now worth 2.3 lakhs. He will now have to pay the charges applicable for regular Demat accounts.
Repatriable Demat Account
NRIs with the interest to grow money through the stock market in India will have to open the Repatriable Demat accounts. Then, they can invest in real-time from anywhere worldwide.
There will be a quick reflection for every transaction carried out by the investors. In addition, you can transfer your funds abroad using it.
There is a need for an associated NRE bank account for a repatriable Demat account. Both residents and non-residents can easily trade and invest in the Indian Stock market using Repatriable Demat accounts. For NRIs, it is essential to follow all the Foreign Exchange Management Act (FEMA) rules to open these accounts.
Along with a Repatriable Demat account, it is compulsory to open a Trading account from an authorized Indian institution as per the Reserve Bank of India (RBI). An NRI will require a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) account to route all their investments. Another thing to note is that the NRI Demat accounts also have the nomination facility. This is just as the regular account has the facility to have joint holders who are Indian citizens.
Here are the following documents required to open a Repatriable Demat account.
- A copy of a PAN Card
- Overseas address proof [rental/lease agreement, utility bills, sale deed, etc.]
- Passport size photograph
- Canceled check leaf of NRE/NRO account
- FEMA declaration form
An NRI has to attest to all the documents mentioned above at the Indian Embassy of the respective country. The NRI can avail of the portfolio investment NRI scheme (PINS) to conveniently invest in the share market of India. The scheme facilitates buying and selling shares of the companies listed in the stock exchanges operating in India. NRI can open either an NRE PINS account or an NRO PINS account. The portfolio investment NRI scheme allows investing in the Indian stock market and taking the funds back to the foreign countries. However, the NRO PINS account does not allow this facility of repartition of funds used for carrying the transactions.
Non-repatriable Demat Account
The Non-repatriable Demat accounts are available for Non-Resident Indians (NRIs), just like Repatriable Demat accounts. However, these types of Demat accounts don’t provide NRIs with the right to transfer all their funds to several foreign countries. For doing so, you will require an associated NRO bank account. Hence, there will be challenges for NRIs having earnings in both India and foreign countries in terms of finances.
It may be difficult for NRIs to track their bank accounts in another country. Having both NRE and NRO accounts can resolve this issue. An NRI can carry a paid-up capital of 5% in any company in India, according to the Reserve Bank of India (RBI).
An NRI can use a Non-Resident External (NRE) Demat and funds in an NRE Bank account to make investments in Initial Public Offers (IPO) as per the repatriable concept. However, at the same time, an NRI has to use an NRO and Non-Resident Ordinary Rupee (NRO) Demat account to invest its funds as per the non-repatriable concept. The NRIs can also invest through the NRI portfolio investment NRI schemes using the Non-repatriable Demat accounts. However, they would require a different PINS account and the NRE account. This is a mandatory requirement if they wish to invest in equities. The NRI investors should know that they cannot simultaneously have more than one pins account.
A Demat account holder who left India can easily convert their Demat account into the NRO category. They can even open a new account for trades. You will get all your shares transferred to the holding account of NRO from your previous account.
Frequently Asked Questions (FAQs)
Basic Services Demat Accounts (BSDA) are new types of Demat accounts. Securities and Exchange Board of India (SEBI) introduced these Demat account types, “BSDAs,” in 2012 for investors with fewer investments whose portfolios are below a threshold of Rs. 2 lakhs. Such investors don’t participate in the Stock market frequently.
The Portfolio Investment Scheme (PIS) is a special kind of scheme enabling all the Non-Resident Indians (NRIs) to invest in the Indian share market, both on a repatriable or non-repatriable basis. Both a PIS account and an NRE account work in the same manner. While using your Demat account to invest in India, you will have to take the help of PIS.
Yes, you can buy and sell in India without a Portfolio Investment Scheme (PIS). You can buy and sell in India without a Portfolio Investment Scheme. However, you will have to use a non-PIS Bank account when you don’t want to use a PIS account.
An NRI can invest in the following shares using a non-PIS account:
Claims obtained via a non- PIS
Shares bought via IPOs
Claims received from relatives as gifts
Shares bought as an Indian resident
You need to know your expectations and requirements properly before trading and investing in the stock market. Then, when you know your future investment plan, you can decide which type of Demat account is the right choice for you.