A Demat account is used for electronically holding and transacting securities such as stocks and bonds, eliminating the need for physical share certificates. One of the biggest benefits of demat account for investors is that it is digital. Having said that, there are many other advantages of demat accounts that can be listed as follows. Demat is a form of an online portfolio that holds a customer’s shares and other securities. It has negated the necessity of holding and trading physical share certificates.
It uses quick & easy methods to receive dividends, interest or refunds. It also uses Electronic Clearing Service (ECS) for updating investors’ accounts with stock splits, bonus issues, rights, public issues, etc. The depository participant (DP) helps to convert all your physical certificates to electronic form and vice versa. The Depository, the Depository Participant (DP), and the Bank are the three important parties involved in the trading process. The depository is an organization that supports trading and holds all shares and securities in a dematerialized form.
- Demat accounts, or Dematerialized accounts, keep assets electronically.
- If an investor holds between ₹50,000 and ₹2,00,000 in their BSDA account, a maintenance charge of ₹100 per annum is applied.
- Investors are also issued a DP ID, or Depository Participant ID, by their preferred broking firm or other financial institutions.
Different types of Demat Accounts
These accounts can also be used to create a portfolio of one’s bonds, ETFs, mutual funds, and similar stock market assets. The Indian stock market uses trading and different types of Demat accounts. SEBI (Securities and Exchange Board of India) introduced a new type of Demat account called a Basic Service Demat Account (BSDA) in 2012. A simplified and streamlined alternative to a standard Demat account is a BSDA account. Due to the lower minimum investment, this is a great option for small investors who don’t frequently engage in stocks, ETFs, mutual funds, etc.
This distinction has gained prominence in the last couple of years with the emergence of discount brokers who trade huge volumes at a very low cost. These discount brokers do not offer any research or any add-on advisory services. They just offer plain execution of trades which is why they are able to offer services at a very low brokerage. Similarly, these discount brokers do not offer offline facilities for placing trades except a call-and-trade facility, which is chargeable in most cases. Demat trading was first introduced in India in 1996 for NSE transactions. As per SEBI regulations, all shares and debentures of listed companies have to be dematerialised in order to carry out transactions in any stock exchange from 31st March 2019.
They offer different services and benefits, so it is important to understand which type of Demat account best suits your financial requirements. With the right Demat account, you can make the most of your investment opportunities in the stock market. On the other hand, NRIs can use repatriable or non-repatriable demat accounts based on whether they want to transfer their funds abroad or keep them in India. Repatriable demat account and non-repatriable demat account is applicable to NRI demat accounts.
Basic Services Demat Account (BSDA)
Repatriable Demat Accounts allow NRIs to invest in India, with the added benefit of repatriating the funds back to their country of residence. These accounts require an NRE (Non-Resident External) bank account for the transfer of funds. Equity culture in India is growing, with the number of Demat accounts rising fourfold from pre-pandemic levels to over 16 crores (as of June 2024). If you are considering investing in equities, it’s important to understand the different types of Demat Accounts to manage your securities effectively and make the most of your investments. The type of types of demat account Demat account you select depends on your investment needs.
However, they must follow the rules and regulations of the Foreign Exchange Management Act (FEMA). No, you generally cannot buy shares without a Demat account, as it serves as the electronic repository for holding and trading securities in the modern financial system. You can choose to open demat account or a 3-in-1 account that links your trading and bank accounts too.
To open a repatriable demat account, the NRI must have an NRE bank account linked to demat account. Investors residing outside India can transfer funds abroad with a repatriable demat account. Similarly, when you choose to sell your shares, they get debited from your demat account.
What Are The Benefits Of A Demat Account?
Once the shares are allotted to you, the shares will be credited to your Demat account. The only catch here is that you cannot sell the shares unless you have a trading account. Hence, you are buying shares purely with a view of holding them for the long term, then Demat account alone is sufficient.
These accounts are linked to NRO (Non-Resident Ordinary) bank accounts. The choice of Demat account type depends on the investor’s residency status and investment objectives. Other specialized types of Demat accounts may also be available to cater to specific investor categories, such as corporate entities, institutional investors, or foreign portfolio investors (FPIs). Now that you have learnt about the various types of demat account, open a demat account with India’s most trusted broker Angel One. Once your account is closed, you can transfer shares to a specific Demat account known as a non-resident ordinary demat (NRO) account.
You can also withdraw money from a regular Demat account without any restrictions. Dematerialization refers to the process of converting physical securities, such as share certificates, into electronic or dematerialized forms. This allows investors to hold and trade securities in a paperless manner. Any individual or entity wishing to trade or invest in securities such as stocks, bonds, mutual funds, or other financial instruments in electronic form needs a Demat account. The introduction of demat accounts and electronic trading has made investing safe to a large extent. All the transactions leave an electronic trail that is traceable by regulatory authorities.
Types of Demat Accounts: Regular, Basic Services, and BSDA
Trusted by over 2 Cr+ clients, Angel One is one of India’s leadingretail full-service broking houses. We offer a wide range of innovativeservices, including online trading and investing, advisory, margin tradingfacility, algorithmic trading, smart orders, etc. Our Super App is apowerhouse of cutting-edge tools such as basket orders, GTT orders,SmartAPI, advanced charts and others that help you navigate capitalmarkets like a pro. Non-resident Indians can open Demat accounts of repatriable types. One can transfer money from overseas through such accounts, provided it is linked to an NRE bank account.
Demat accounts play a crucial role in stock market investments, as it is one of the most common methods of investing in the stock market. However, recently, several online platforms provide the benefit of online trading without such accounts. However, there will be other charges, such as annual maintenance fees, trading fees, etc.
Beyond Rs2 lakh value, BSDA automatically gets shifted to a regular demat account. Regular demat account is one of the default demat account types for resident Indians. It is the most common form of demat account and is used by people residing in India and holding Indian citizenship. Regular demat account will necessarily charge annual maintenance charges (AMC), although account opening charges are waived off. The fees charged for a regular type of demat account depends on the value of securities held in the account.