Introduction to Demat Account & Types
Before choosing the suitable type of Demat account, it is important to understand what is Demat account and what it entails? A Demat account or Dematerialised account is a kind of account that records the number of shares and securities an investor is in possession of. It is mandated by the Securities and Exchange Board of India (SEBI) to use a Demat account for share transactions. The account holder operates the Demat account with the intermediation of a Depository participant. A Demat account involves certain minimal charges such as Demat opening fee, Annual Maintenance charge (AMC), custodian fee and transaction fee.
3 Primary types of Demat Accounts
There are primarily 3 types of Demat account. Demat accounts can be used by Indian residents as well as Non-resident Indians (NRIs). Depending on their residential status, investors can choose a suitable Demat account for them.
Regular Demat Account
Regular Demat accounts are available only for investors who are residential Indians. The Regular Demat account is suitable for investors who deal with shares on their own. Regular Demat accounts allow investors to conduct quick transactions of shares. Investors can transfer their shares from Regular Demat account to other institutions for no charge at all. All records of shares are stored in the form of electronic copies in the Regular Demat account. Regular Demat account is offered by all banks and discount brokers. For example, discount brokers 5paisa offer free of charge Regular Demat account at zero AMC.
Check: What is the use of Demat account
Repatriable Demat Account
The Repatriable Demat account is among the two types of Demat account available for NRIs. NRIs opting for the Repatr iable Demat account are required to comply with the rules of the Foreign Exchange Management Act. The Repatriable Demat account allows NRIs to transfer funds abroad. However, unlike Regular Demat account holders, Repatriable Demat account holders are required to link their NRE (Non-Resident External) Account with the Demat account. Repatriable Demat accounts are available at all banks and discount brokers. The Repatriation of the funds depends upon the rule of both the countries and also on the fact that the government of both countries have no intention of blocking the fund's transfer for that particular person.
Non-Repatriable Demat Account
The Non-Repatriable Demat account is the second Demat account option available for NRIs. However, the Non-Repatriable Demat account does not allow NRIs to transfer funds abroad. Investors holding a Non-Repatriable Demat account are required to link their NRO (Non-Resident Ordinary) savings account with the Demat account for effective operation. Before gaining the status of NRI, investors with Regular Demat can transfer to the Non-Repatriable Demat account category after leaving India without any loss of shares or opt to open a new account altogether.
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 (cancelled cheque)
5. Copy of PAN Card
6. Copy of Visa (for NRIs)
7. FEMA declaration (for NRIs)
How to pick the right type of Demat Account?
Along with knowing what is Demat account, investors should also be aware of their requirements and expectations. NRIs need to look into their future investment plan to decide which NRI Demat account option fits their plan. NRIs can avail to a single or multiple Demat accounts. Most NRIs hold both Repatriable Demat and Non-Repatriable Demat accounts. However, they can have only one NRI PIS (Portfolio Investment Scheme) bank account. NRIs can invest in Stocks and Mutual Funds of Indian companies only if they have a PIS enabled bank account. Regular Demat account is only for Indian residents. All types of Demat accounts offer the nominee facility. In case of the demise of the Demat account holder, the nominee becomes the beneficiary of the shares recorded in the account.
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Frequently Asked Questions
The benefits of using the different types of Demat accounts in India include the following:
● You can hold securities and shares in an electronic format.
● You can conduct fast and instant security transfers.
● You will be able to eliminate ‘bad deliveries.’
● It allows quick disbursement and settlement of Corporate perks like dividends, bonuses, etc.
● There will be risk elimination by mutilation, theft, loss, etc.
Two popular types of demat accounts in India are repatriable and non-repatriable accounts. Compared to non-repatriable accounts, repatriable ones enable NRIs to transfer their hard-earned funds or money abroad. However, if any NRI invests in mutual funds via an NRO (Non-Resident Ordinary) account, their income from such mutual funds investment will be non-repatriable.
Yes, the different types of demat accounts are mandatory, only under certain circumstances. Having a demat account is mandatory only when you plan to invest in stocks and no other type of security. Although a demat account isn’t mandatory to invest in mutual funds, having access to one can simplify things for you.
A 3-in-1 demat account is one of the most popular types of demat account, which is a combination of a demat, trading, and bank account. This allows individuals to store and save their own funds via savings account, buy or sell securities via trading account, and store those securities via demat account.