The number of Demat accounts in India reached 11 crores in January 2023 from 8.4 crores in January 2022, rising 31%. What’s more, an estimated 60 million Indians, or 4.3% of the total population, had opened over 100 million Demat accounts as of 2022. Wondering what a Demat account is and why it is so popular?
Demat stand for Dematerialisation, which means converting certificates and debentures into electronic form. The primary purpose of opening this type of account is to take ownership and store shares in a digital format. It is a primary requirement if you wish to invest in the stock market and trading convenient.
To open a Demat account, you need to talk to a Depository Participant (DP). They will utilise the following to open the account for you:
- The National Securities Depository Limited (NSDL)
- Central Depository Services Limited (CDSL)
Besides shares, a Demat account can also store government securities, insurance policies, ETFs and mutual funds. It mainly requires an issuing company, depository, depository participants and investors. This article tells you more.
What is a Demat Account?
Demat accounts were first introduced by the National Stock Exchange (NSE) in 1996. Back then, opening the account was a manual process. Today, it takes just a few minutes to complete the process. If you wish to invest in the stock market (NSE & BSE), opening a Demat account is mandatory. It helps in electronic settlements of transactions and trades. All you need to do is:
Step 1: Fill the required information and sign the application form.
Step 2: Enter the OTP sent to your registered phone number.
Step 3: Enter your KYC details.
Step 4: The Demat account details will be sent on your registered email ID.
It is a critical tool to keep your holdings safe. The Demat account service is facilitated by intermediaries that charge a fee depending on the volume held. Demat has been a boon in enabling the digitisation of the Indian stock trading market and ensuring proper governance by the Securities and Exchange Board of India (SEBI).
Types of Demat Accounts in India
You can choose from three types accounts:
1. Regular Demat Account
This account is provided by both the CDSL and NSDL. SEBI has also introduced a Basic Services Demat Account (BSDA). It comes with zero maintenance charges for holdings that are valued at up to ₹50,000.
A regular Demat account is typically for Indian investors who want to engage in equity trading and investment. The shares bought are stored in a digital format and the ones sold are taken out of the account. But regular Demat accounts are not required if you want to trade in futures and options, since they have an expiry date and do not need to be stored. The idea of a regular trading account is to make trading simple by transferring shares within a few hours rather than weeks or even months.
2. Repatriable Demat Account
It type of account has been designed for non-resident Indians (NRIs) wanting to trade in Indian securities and then transfer the wealth across nations. To open the account, you will first need a non-resident external (NRE) or Non-Resident Ordinary (NRO) bank account. The RBI has mandated this to help NRIs open a trading account with a reputed institution that has been authorised by the financial regulator.
Opening a repatriable Demat account is done strictly by following the rules and regulations laid down by the Foreign Exchange Management Act (FEMA). Keep your PAN card, visa, overseas address proof, passport and passport-sized photograph to get started.
3. Non-Repatriable Demat Account
This is similar to a repatriable Demat account except that NRIs cannot transfer funds internationally without an NRO bank account. As an NRI, you can hold a paid-up capital of 5% in all Indian companies listed on the BSE and/or NSE.
If you wish to invest in Initial Public Offerings (IPOs), you can do so with the help of funds in your NRE bank account and an NRE Demat account.
Features of Demat Accounts
The top features of Demat accounts that make transactions a smooth process include:
- Allows you to freeze the account for a particular period.
- The account via any device, laptop, tablet or smartphone, as long as you have internet connectivity.
- Super quick and easy access to all investments and statements via net banking.
- Electronic shares can be easily turned into physical shares.
- You can apply for loans against the shares held in the account.
- Foreign investors get a chance to invest in the Indian stock market, which ultimately boosts our economy.
- Instructions slips can be sent virtually rather than sending hard copies to the DP.
As an account owner, you will automatically qualify for credit, dividends and interests that companies offer investors. Bonus issues and stock splits are also updated in the Demat account. You can also enjoy automated credit shares that are created via mergers and acquisitions of companies.
What are the Benefits?
Demat accounts ensure safety and offer several advantages, such as no stamp duties on securities transfers, removal of “bad deliveries,” reduced risk of document loss, affordability and easy tracking. Other benefits include the facility to invest in multiple schemes, including ULIPs, ELSS, F&Os and commodities. Further, zero TDS is ensured, which means no tax deducted at source is required from the interest received through the bonds and shares.
Overall, a Demat account makes investments hassle-free. It reduces paperwork and ensures faster settlement of bonuses, dividends and rights. There are fewer risks of a mismatch in bank accounts and addresses. You will also receive statements and information regarding your account regularly for informed investments. This explains to a large extent why the number of Demat account holders in India doubled in the 3 years to 2021.