Stock market investments open a wide range of opportunities to secure better financial growth. But there are specific requirements that you need to fulfil before investing. Among these requirements is a Demat account.
SEBI, the Securities and Exchange Board of India, made having a Demat account mandatory for those who intend to invest in shares and securities, i.e., the stock market. The primary purpose is to facilitate the digital storage of certificates.
This helps reduce the risks associated with physical storage of certificates. However, there are various types of Demat accounts that you can hold. But the meaning, purpose, and eligibility of these accounts differ. Knowing this can help you make an informed decision.
Read on to learn more about the different types of Demat accounts and understand which is the best for you.
Short for Dematerialised, a Demat account stores your shares and securities electronically. Holding your shares and securities electronically has several benefits, such as:
Elimination of physical documents
Easy and efficient investment process
Safety and security of documents
24x7 monitoring and tracking
Availability of multiple investments
No risk of theft/damage to documents
Additional digital tools for convenience
A Depository Participant (DP) manages your account, and there are some minimal fees and charges. This includes an opening fee, custodian fee, annual maintenance charge, and transaction fee. These charges may also differ based on the DP and types of Demat accounts you choose.
Here are the three types of Demat accounts:
This is one of the types of Demat accounts specifically curated for the residents living in the country. This account keeps your investments digitally and operates just like a bank account. This means that the investment gets credited when you buy, and when you sell, it gets debited.
In addition, there is another account for stock market investments by citizens in India – BSDA (Basic Services Demat Account). SEBI introduced BSDA to encourage financial inclusion throughout the country, and it is quite similar to the regular Demat account.
However, there is one key difference with regards to the maintenance charges. BSDA has no maintenance charges if the total value of holdings is below ₹50,000. However, if the holdings range between ₹50,000 and ₹2 lakhs, an annual charge of ₹100 is applicable. For holding above ₹2 Lakhs, the charge is the same as other accounts.
You also need to remember that you do not need a Demat account for investments or trade in futures and options. This is because futures and options have expiry dates and don't have storage requirements like equity shares.
A non-repatriable Demat account is one of the types of Demat accounts explicitly designed for citizens residing outside the country, also known as NRIs. Apart from non-resident Indians, the account is also available to people of Indian origin (PIO) living in countries with foreign exchange regulations.
In this account, you can freely transfer your money back to your home or origin country. As such, the primary purpose of a non-repatriable Demat account is to invest funds that originate from the country or funds that you cannot transfer.
With this account, NRIs or PIOs can buy and sell shares and securities in the country. However, it is essential to note that you cannot easily withdraw from a non-repatriable Demat account and take it back to the country you currently live in.
Although similar to the non-repatriable Demat account, repatriable accounts have a crucial point of difference. This is regarding the ease with which you can withdraw and transfer funds from the account. In a repatriable account, investors can transfer funds outside the country.
However, you must link the account with your Non-Residential External (NRE) bank account. It is also essential to know that the ability to transfer funds abroad or repatriate depends on the laws and regulations of both- your citizen country and the residing country.
By replacing physical shares and securities with electronic records, Demat accounts have transformed how you invest in the stock market. This transformation provides a smooth and efficient investing experience.
Various types of Demat accounts available in the market can make it confusing to choose the best account for you. Here are some factors which can assist you in choosing the best account for you:
Convenient account opening process
Lower account opening charges
Easy-to-navigate user interface
Feature information and data of your account
Lower brokerage charges
With the continuous advancement of technology, Demat accounts are becoming increasingly popular for investing. Different types of Demat accounts enable you to confidently explore thrilling market opportunities and have better financial growth.
A 3-in-1 demat account combines three essential accounts into a single package: a demat account, a trading account, and a bank account. It enables seamless integration and convenient transactions by allowing investors to buy, sell, and hold securities, as well as settle funds directly from a single platform. This account type streamlines the investment process, eliminating the need for separate accounts and facilitating efficient management of investments.
No, repatriable and non-repatriable demat accounts are not the same. Repatriable demat accounts permit the NRIs to transfer their money abroad, whereas non-repatriable demat accounts don’t. However, similar to a repatriable account, it requires regulatory approvals and adheres to specific guidelines.