Understanding the Different Types of Demat Account

Introduction

Opening a Demat account is the first step towards becoming an investor in the stock market. The primary objective of having a Demat account is to minimize the hassle of maintaining hard copies of documents of all transactional data and to store an electronic format for convenience. It is also mandatory to open a demat account to participate in the financial markets. 

Here is a detailed description of what a Demat account is and its main categories.

What Is A Demat Account?

Dematerialised Accounts, also called Demat accounts, are a vault to store investors’ shares and securities. A Demat account with a depository participant is majorly used to digitally store shares, bonds and other securities and to keep an electronic record of transactions.

A Demat Account is important as securities bought and sold by investors are tracked via a Demat account. It allows easy transfer of shares and reduces the risk of forgery or theft as everything is in an e-format.

Given that both Indian citizens and non-residents of India can invest and trade in the Indian stock market, SEBI (Securities and Exchanges Board of India) has mandated that all investors have a Demat account and introduced specific accounts for them.

Categories of Demat Account

Here are 3 main types of Demat accounts for investors living in India and abroad.

1. Regular Demat Account: 

A regular Demat account is meant for Indian citizens who wish to invest in the Indian share market. A subcategory of a Demat account is a Basic Services Demat Account (BSDA). It is meant for small investors who cannot sell or purchase securities regularly or consistently in the stock market. 

A Demat account is automatically termed as a BSDA under 2 conditions. They are:

• If there is only 1 Demat account registered with that PAN across brokers.

• The total value of securities in the Demat account is not more than Rs. 2,00,000.
  

2. Repatriable Demat Account:

A repatriable Demat account is meant for those Non-Residential Indians (NRIs) who wish to invest in the Indian market. By opening a repatriable Demat account, they can trade from any part of the world and can transfer funds to any foreign country. 

However, the only prerequisite is to have a Non-Resident (External) or an NRE bank account.

3. Non-Repatriable Demat Account:

A non-repatriable Demat account is similar to a repatriable Demat account as it is meant for NRIs interested in investing in the Indian stock market. However, here are 2 main points of difference between the 2 Demat accounts:

• Unlike repatriable Demat accounts, funds cannot be transferred to a foreign country by an NRI.

• Instead of having an NRE account, the investor is supposed to have a Non-Resident Ordinary (NRO) bank account to be able to trade in the Indian stock market.

Summing It Up

The two primary criteria taken into consideration while choosing a Demat account are trading frequency and residency status. A regular Demat account is meant for Indian citizens whereas a repatriable and a non-repatriable Demat account is specifically made for NRIs to enhance their trading convenience. Therefore, select the account that meets your requirements, optimizes your trading experience and ensures that you comply with all the regulations.