Before choosing the most suitable type of Demat account for you, you need first understand what is a Demat account?. A Demat account, also known as a Dematerialised account, is a type of account that holds and records your shares and securities. It is mandated by the Securities and Exchange Board of India (SEBI).
You don't physically hold paper certificates for your investments when you have a Demat account, and all of your ownership and transactions are documented electronically. You manage the Demat account with the assistance of a Depository Participant, who works as an intermediary between you and the depository.
There are certain fees associated with having a Demat account, although they are usually minimal. These charges can include a fee for opening the Demat account, an Annual Maintenance Charge (AMC) to keep it active, a custodian fee for safekeeping your securities, and a transaction fee for buying or selling securities.
Different Types of Demat Accounts in India
There are primarily 3 types of Demat accounts. Demat accounts can be used by Indian residents. Investors can select an appropriate Demat account based on their residence status.
1. Regular Demat Account
Indian nationals typically use standard demat accounts. With the assistance of middlemen such as stockbrokers, depository participants, etc., National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) offer ordinary demat accounts in India. Regular demat account fees are determined by the kind of account, the amount maintained in the account, and any other terms and circumstances established by the depository and the depository participant (DP). A normal demat account's main goal is to further simplify and ease trading activities. This implies that, as opposed to weeks or months, the share transfer must be finished in a matter of hours.
Currently, the ordinary demat account lowers the danger of theft, damage, and robbery by enabling the investor to hold their shares in an electronic version instead of physical form. Convenience is one of the main advantages of maintaining a regular demat account for all of its users.
2. BSDA - Basic Service Demat Account
The Securities and Exchange Board of India (SEBI) has recently introduced a new type of Demat account called the Basic Services Demat Account (BSDA). It's quite similar to a regular Demat account, Regular accounts are standard, while BSDA is for infrequent investors with lower fees. The only difference here is, for this type of account there aren’t any maintenance charges. If the total value of your holdings in the account remains at ₹50,000 or below. A regular account can become a BSDA, if the total value of your investment portfolio exceeds ₹2,00,000, your BDSA would automatically be converted into a regular Demat account. BSDA is designed to be more affordable for smaller investors, making it easier for them to participate in the stock market.
What's the Difference
Let’s understand the distinction between these two accounts.
● 1st Slab: For holdings up to ₹50,000, there are no maintenance charges (AMC).
● 2nd Slab: If your holdings range from ₹50,001 to ₹2,00,000, you'll be charged ₹100 annually for AMC.
● 3rd Slab: For holdings exceeding ₹2,00,000, the maintenance charge rises to ₹25+18% GST per month.
3. Repatriable Demat Account
Non-resident Indians also have the option to trade and invest in Indian securities, by using a repatriable Demat account. This type of account allows traders/investors to transfer funds abroad if needed. However, traders/investors must have a Non-Resident External (NRE) bank account linked to this type of Demat account.
Here's the process: When you become a non-resident Indian, you'll need to close your Demat account that you held as a resident Indian. Once that's done, you can transfer your shares to a Non-Resident Ordinary (NRO) account. If you plan to sell your shares, there's a limitation that means, you're allowed to transfer a maximum of $1 million per calendar year from your NRO account to your overseas accounts.
What are the documents required for opening all types of Demat Accounts?
The documents required for opening a demat account are as follows:
1. Proof of Identity
2. Proof of Address
3. Proof of Income
4. Proof of Bank Account (canceled cheque)
5. Copy of PAN Card
Is a Demat account mandatory for Trading or Investing?
Yes, a Demat account is mandatory for trading and investing in the Indian stock market. It allows investors to hold and manage securities in an electronic format, eliminating the need for physical certificates. This electronic storage ensures greater security, reduces the risk of theft or loss, and simplifies the process of trading.
SEBI mandates the use of Demat accounts for transactions involving equities and other securities. Without a Demat account, one cannot buy or sell shares in the Indian stock market, making it an essential requirement for all investors.
How to pick the right type of Demat Account?
Along with understanding what a Demat account is, investors should also consider their requirements and expectations. It's important to note that a Regular Demat account is meant only for Indian residents. All types of Demat accounts provide the option to designate a nominee. In case of the demise of the Demat account holder, the nominee becomes the beneficiary of the shares held in the account.
Conclusion
In India, Demat Account Classification includes various categories to suit different investor needs. The Types of Demat Accounts India offers are primarily classified into Regular Demat Accounts, Basic Services Demat Accounts (BSDA). These Different Demat Accounts cater to individual preferences and requirements. Understanding the Demat Account Varieties helps investors choose the best option for their financial goals. Exploring Indian Demat Account Types ensures you select the right account for efficient trading and investment.
