Types of Demat Accounts

Before comprehending the types of Demat accounts, let us first discuss what a demat account actually is. A Demat account is a digital repository used to hold and manage various financial securities, such as stocks, bonds, and mutual funds, in electronic format. It eliminates the need for physical certificates and streamlines trading and investing processes. By facilitating secure and convenient transactions, a Demat account has become an essential tool for modern investors, offering efficient stock trading, reduced paperwork, and easy access to holdings’ information.

Different Types of Demat Accounts

There are different types of Demat accounts offered by Depository Participants (DPs) and stockbrokers in India. Stockbrokers and DPs are authorised by the Securities and Exchange Board of India (SEBI) for the distribution of different accounts. You must choose a suitable Demat account type when applying with a broker or DP. Here are the common Demat account types available in India:

  • Regular Demat Account

  • Repatriable Demat Account

  • Non-Repatriable Demat Account

Besides the above Demat account types, there might be a few more. For instance, some brokers might offer minor demat accounts in India. A minor account can be opened in the name of someone who is below 18 years of age. However, the parent or legal guardian applies on behalf of the minor. Some DPs might offer a Basic Services Demat Account (BSDA) service in India. A BSDA is meant for small investors to hold and transact a limited number of securities.

Regular Demat Account

A regular Demat account is meant for investors residing in India. Anyone above 18 years of age can apply for a regular Demat account in India. Both DPs and stockbrokers in India are allowed to distribute regular accounts. It is an electronic account that helps store different securities. Also, financial securities are dematerialised before being stored in the account. Most investors rely on regular Demat accounts for equity trading. As soon as you purchase stocks via a trading account, they are transferred to the regular Demat account. It is crucial to ensure that the zero brokerage demat account is linked with the main trading account. It will allow faster transfer and storage of securities.

Besides stocks, a regular Demat account can hold bonds, debentures, and other securities. Options and futures traders can do well without a regular account. Since futures and options contracts have a fixed expiry date, there is no need for account. However, it is suggested to
open Demat account and invest in a wide range of securities to ensure diversification. Investors are allowed to take advantage of corporate actions like stock splits and bonus issues with a regular Demat account. This Account also has no limitations in terms of trading or transaction volume.

Check whether your broker or DP is registered with NSDL or CDSL before applying for a regular account. These are two registered depositories for Demat accounts in India. You must also be prepared to pay the broker or DP annual maintenance charges, custodian fees, and other expenses. Some Demat account providers might ask investors to keep a minimum fund balance in their accounts.

Since regular Demat accounts come with maintenance charges, SEBI launched the BSDA facility. You don’t have to pay maintenance charges when the holding amount is less than INR 50,000. For holdings between INR 50,000 and 2 lakhs, the maintenance charge is only INR 100 per year. The BSDA facility has helped in the growth of the number of retail investors in India. You can enquire about these types of Demat accounts before applying with a broker or DP.

Recommended Read: Demat Trading Account Fees & Charges

Repatriable Demat Account

Did you know that Non-Resident Indians (NRIs) are also allowed to invest in Indian markets? However, an NRI cannot buy or sell securities on Indian exchanges via a regular Demat account. They can invest in Indian markets only through repatriable and non-repatriable Demat accounts. These two types of Demat accounts are not meant for individuals residing within India.

An NRI can apply for a repatriable Demat account and invest in the Indian share market. The best part is that they can invest from anywhere in the world via a repatriable Demat account. Another benefit of a repatriable Demat account is the transfer of funds. NRIs having repatriable accounts are allowed to transfer funds to foreign countries. However, an NRI cannot apply for a repatriable account without an NRE (Non-Resident External) bank account. Many brokers or DPs accept a NRO (Non-Resident Ordinary) account for opening a new repatriable account.

Accounts transactions will be conducted in Indian currency. However, the currency can be changed for repatriation. You can transfer funds to a repatriable account via NRO or NRE accounts. Funds from foreign remittances can also be added to a repatriable account. Many NRIs earn income in India through rent, business, or other means. The income earned in India can also be transferred to a repatriable account for investment purposes. NRIs are also allowed to jointly hold a repatriable Demat account with another NRI. However, you might not hold a repatriable Demat account jointly with a resident Indian. At present, NRIs are allowed to repatriate a maximum of USD 1 million from a repatriable account in a year.

Repatriable Demat accounts also allow NRIs to invest in a wide range of securities. NRIs can hold government securities, stocks, bonds, and more with a repatriable account. NRIs are also subjected to taxes on earnings via a repatriable Demat account. If you have just become an NRI, apply for the closure of your regular account. You can only apply for a repatriable Demat account after closing your regular dematerialisation account. Similarly, NRIs becoming residents of India must convert to a regular account. The rules and regulations for repatriable accounts might change with time. Don’t forget to consult the broker or DP before applying for a repatriable Demat account.

Non-Repatriable Demat Account

As discussed above, there are two major types of Demat accounts for NRIs. A non-repatriable Demat account is also meant for NRIs who do not reside in India. However, a non-repatriable account is a little different from a repatriable Demat account. Unlike a repatriable account, NRIs aren’t allowed to transfer funds abroad from a non-repatriable account. A non-repatriable Demat account is also referred to as an NRO (Non-Resident Ordinary) Demat account. Also, you need to associate an NRO account with a non-repatriable Demat account.

NRIs are allowed to invest in Indian companies on a repatriable or non-repatriable basis. They can also invest in other securities like bonds, debentures, and mutual funds. When NRIs invest on a repatriable basis, they are allowed to transfer funds abroad. However, they face several restrictions when transferring funds abroad for non-repatriable investments. In some cases, NRIs are allowed to transfer funds in small amounts via a non-repatriable Demat account. However, there will always be limitations on transferring all the funds abroad via a non-repatriable Demat account.

Are you about to turn NRI soon? You don’t have to worry, as your regular Demat account will be converted into a non-repatriable Demat account. You can also choose to convert it into a repatriable Demat account. You will not experience any loss of shares during the Demat account conversion. Similarly, an NRI becoming a permanent resident can convert their non-repatriable Demat account to a regular account.

Recommended Read: Demat Account Fees

The funding process for a non-repatriable account is similar to that of a repatriable account. You can use the income earned in India to make investments via a non-repatriable Demat account. You can also use NRE or NRO accounts to add funds to a non-repatriable account. The application process for NRIs is almost similar for both repatriable and non-repatriable Demat accounts. Don’t forget to ask the broker about non-repatriable account rules before applying.

What Are the Documents Required for Opening Demat Accounts?

Now that you understand the types of Demat accounts, let us discuss the documents required for opening a new account. The stockbroker or DP will confirm your identity, address, and other details before offering a dematerialisation account. Also, Know Your Customer (KYC) rules require brokers or DPs to collect authentic documents before offering Demat accounts. Here are the documents required to open different types of Demat accounts in India:

  • Identity proof (PAN card, Aadhaar card, etc.)

  • Address proof (Aadhaar card, utility bill, etc.)

  • Income proof (salary slips, bank account statements, ITR records, etc.)

  • Cancelled cheque

  • PAN card (mandatory)

  • VISA copy (for NRIs)

  • Declaration from FEMA (for NRIs)

Recommended Read: How to Convert Physical Shares to Demat Account?

Which is the best Demat Account for you?

You must choose the types of Demat accounts based on your requirements. For instance, some parents or guardians want to teach trading basics to their children. In such a case, they can choose minor Demat accounts. Indian residents can open regular Demat accounts for their investments. Regular accounts allow investors to hold securities as long as they want. It’s important to compare demat account opening charges to find the most cost-effective option. Some investors might be worried about the high maintenance charges of regular Demat accounts. In such a case, they can apply for a BSDA in India. Using a top demat account ensures better services and benefits for your investments.

NRIs aren’t allowed to open regular Demat accounts in India. They can only choose between repatriable and non-repatriable Demat accounts. NRIs interested in transferring funds from Demat accounts abroad must choose repatriable Demat accounts. NRIs can also choose non-repatriable accounts when they do not want to transfer funds abroad. Some NRIs have both repatriable and non-repatriable Demat accounts for different investments. They can have multiple Demat accounts but only a single PIS (Portfolio Investment Scheme) bank account. You can always consult the Demat account provider to choose the right option with benefits of Demat Account

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Conclusion

Demat accounts are mandatory for holding dematerialised securities in India. Investors must know the different types of Demat accounts before starting their trading and investment journey. Investors residing within India can go for a regular Demat account. Basic services Demat accounts are also available for small investors with limited holdings. On the other hand, minors in India can apply for a Demat account with a parent or legal guardian. Select your Demat account type and start investing!

 

 



Frequently Asked Questions

Investors can choose different types of Demat accounts for holding securities. Indian residents can choose a regular Demat account or a BSDA. NRIs can choose between repatriable and non-repatriable accounts for investing.
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