Types of Demat Account in India

Before choosing the most suitable type of Demat account for you,  you need first understand what a Demat account is. A Demat account, also known as a Dematerialised account, is a type of account that holds and records your shares and securities. It is mandated by the Securities and Exchange Board of India (SEBI).  

You don't physically hold paper certificates for your investments when you have a Demat account, and all of your ownership and transactions are documented electronically. You manage the Demat account with the assistance of a Depository Participant, who works as an intermediary between you and the depository. 

There are certain fees associated with having a Demat account, although they are usually minimal. These charges can include a fee for opening the Demat account, an Annual Maintenance Charge (AMC) to keep it active, a custodian fee for safekeeping your securities, and a transaction fee for buying or selling securities.
 

Different Types of Demat Accounts in India

There are primarily 3 types of Demat accounts. Demat accounts can be used by Indian residents as well as Non-resident Indians (NRIs). Investors can select an appropriate Demat account based on their residence status.

1. Regular Demat Account 

Indian nationals typically use standard demat accounts. With the assistance of middlemen such as stockbrokers, depository participants, etc., National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) offer ordinary demat accounts in India. Regular demat account fees are determined by the kind of account, the amount maintained in the account, and any other terms and circumstances established by the depository and the depository participant (DP). A normal demat account's main goal is to further simplify and ease trading activities. This implies that, as opposed to weeks or months, the share transfer must be finished in a matter of hours.

Currently, the ordinary demat account lowers the danger of theft, damage, and robbery by enabling the investor to hold their shares in an electronic version instead of physical form.  Convenience is one of the main advantages of maintaining a regular demat account for all of its users.

2. BSDA - Basic Service Demat Account 

The Securities and Exchange Board of India (SEBI) has recently introduced a new type of Demat account called the Basic Services Demat Account (BSDA). It's quite similar to a regular Demat account, Regular accounts are standard, while BSDA is for infrequent investors with lower fees. The only difference here is, for this type of account there aren’t any maintenance charges. If the total value of your holdings in the account remains at ₹50,000 or below.  A regular account can become a BSDA, if the total value of your investment portfolio exceeds ₹2,00,000, your BDSA would automatically be converted into a regular Demat account. BSDA is designed to be more affordable for smaller investors, making it easier for them to participate in the stock market.

Difference

Let’s understand the distinction between these two accounts.
●    1st Slab: For holdings up to ₹50,000, there are no maintenance charges (AMC).
●    2nd Slab: If your holdings range from ₹50,001 to ₹2,00,000, you'll be charged ₹100 annually for AMC.
●    3rd Slab: For holdings exceeding ₹2,00,000, the maintenance charge rises to ₹25+18% GST per month

Example

Here's a simple example to explain:
If you initiated your 5 Paisa BSDA on January 5, 2022, and your investments amounted to ₹1,50,000 during the first quarter, you'd be charged ₹100 annually in fees, based on slab 2, due on April 5.

Subsequent quarters' fees follow a similar calculation method, according to the highest investment value within that specific period.

In the end, your decision between a Regular Account and a Basic Services Account depends on how much you invest, the size of your portfolio, and how much you're willing to pay in fees. 

3. Repatriable Demat Account

Non-resident Indians also have the option to trade and invest in Indian securities, by using a repatriable Demat account. This type of account allows traders/investors to transfer funds abroad if needed. However, traders/investors must have a Non-Resident External (NRE) bank account linked to this type of Demat account.

Here's the process: When you become a non-resident Indian, you'll need to close your Demat account that you held as a resident Indian. Once that's done, you can transfer your shares to a Non-Resident Ordinary (NRO) account. If you plan to sell your shares, there's a limitation that means, you're allowed to transfer a maximum of $1 million per calendar year from your NRO account to your overseas accounts. 

4. Non-Repatriable Demat Account

A Non-repatriable Demat account, also known as an NRO Demat account, is used by Non-Resident Indians (NRIs). However, it comes with limitations on transferring funds to their home country. The investments made through this account cannot be converted to foreign currency. It also necessitates a linked Non-resident Ordinary (NRO) savings bank account. This account is primarily used for managing income earned in India by NRIs, including bonuses and dividends.

With a non-repatriable Demat account, NRIs cannot freely transfer the proceeds from the sale of securities and investment gains. They can only transfer the initial investment amount and interest earned after tax deductions. According to the Reserve Bank of India (RBI), the maximum limit of repatriation from an NRO bank account is capped at $1 million per financial year, and this is applicable after paying taxes on the repatriable amount.
 
 

What are the documents required for opening all types of Demat Accounts?

The documents required for opening a demat account are as follows:

1.  Proof of Identity

2.  Proof of Address

3.  Proof of Income

4.  Proof of Bank Account (canceled cheque)

5.  Copy of PAN Card

6.  Copy of Visa (for NRIs)

7.  FEMA declaration (for NRIs)

Is a Demat account mandatory?

Yes, a Demat account is mandatory for trading and investing in the Indian stock market. It allows investors to hold and manage securities in an electronic format, eliminating the need for physical certificates. This electronic storage ensures greater security, reduces the risk of theft or loss, and simplifies the process of trading.

SEBI mandates the use of Demat accounts for transactions involving equities and other securities. Without a Demat account, one cannot buy or sell shares in the Indian stock market, making it an essential requirement for all investors.

How to pick the right type of Demat Account?

Along with understanding what a Demat account is, investors should also consider their requirements and expectations. NRIs (Non-Resident Indians) need to carefully plan their future investments to determine which NRI Demat account option aligns with their goals. NRIs can choose single or multiple Demat accounts. Many NRIs opt for both Repatriable Demat and Non-Repatriable Demat accounts. However, they can maintain only one NRI PIS (Portfolio Investment Scheme) bank account. To invest in stocks and mutual funds of Indian companies, NRIs must have a PIS-enabled bank account. It's important to note that a Regular Demat account is meant only for Indian residents. All types of Demat accounts provide the option to designate a nominee. In case of the demise of the Demat account holder, the nominee becomes the beneficiary of the shares held in the account.

Conclusion

In India, Demat Account Classification includes various categories to suit different investor needs. The Types of Demat Accounts India offers are primarily classified into Regular Demat Accounts, Basic Services Demat Accounts (BSDA), and Repatriable and Non-Repatriable Demat Accounts for NRIs.

These Different Demat Accounts cater to individual preferences and requirements. Understanding the Demat Account Varieties helps investors choose the best option for their financial goals. Exploring Indian Demat Account Types ensures you select the right account for efficient trading and investment.