Three types of demat accounts:
One needs to understand the types of demat account and why they have been classified as such. This could lead to more meaningful stock market participation. Once you learn the basics, it will be easier to choose the type of demat account that is best suited for you.
Read more: Informative report on demat account
A regular demat account is needed for investors who reside within India. The account is ideal for those who deal with equity shares alone. The shares one buys are stored in the digital format in the account. The ones that are sold are taken from it. If you are planning to trade in futures and options, there is no need to hold a regular demat account. This is because futures and options come with an expiry date and, therefore, do not need to be stored.
Recently, SEBI introduced a new type of demat account called the Basic Services Demat Account (BSDA). This is similar to a regular demat account, except that there are no maintenance charges if the holding is within Rs 50,000. For holdings between Rs 50,000 and Rs 2 lakh, the charges are Rs 100 per annum. The idea behind the launch of the BSDA was financial inclusion and aiding investors who are yet to open a demat account but wish to participate in the markets.
This type of demat account is meant for non-resident Indians (NRIs). It allows the transfer of wealth abroad. However, such types of demat accounts require a Non-Resident External (NRE) bank account. After you become an NRI, you need to close the demat account you had as a resident Indian. Once that is done, you can transfer the shares to a Non-Resident Ordinary (NRO) demat account. If you wish to sell the shares, a restriction on repatriation comes into force. You are allowed to repatriate a maximum of USD 1 million during a calendar year (January–December).
This type of demat account is again for the NRIs. However, you cannot transfer funds abroad. You must also have an NRO bank account linked to the demat account. Read more: What is client ID in demat account?
Holding a demat account has been made mandatory by markets regulator Securities and Exchange Board of India (SEBI). Unless you have a demat account against your name, you cannot participate in the stock markets by buying or selling shares. However, say, you choose to invest in mutual funds. This is another popular markets-linked participation, albeit an indirect one. In this case, holding a demat account is not mandatory.
Read more: Uses of a demat account
Demat accounts have been made mandatory for participating in the Indian stock markets. There are different types of demat accounts that serve specific purposes. For resident Indians, the process of opening a regular demat account is fairly simple. It can be done through a broker of one’s choice. However, for NRIs, the rules are different. Certain restrictions have been put in place for them. NRIs have to conform to the rules of the Foreign Exchange Management Act which mandates them to open slightly modified versions of demat accounts.
Read more: Difference between trading account and demat account
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