A Demat account allows you to buy and sell shares. It is similar to your usual bank account. A Demat account can be used to hold a variety of investments such as shares, bonds, ETFs, mutual funds, government securities etc. It’s like simple debit/credit of money in your account. When you purchase shares, it will be credited to your Demat account and vice versa, when you sell shares.
Let’s check out the types of Demat account to different investors :
1. Regular Demat account:
- This type of account is for Indian citizens who reside in India.
- In India, Regular Demat account service is provided by depositories such as NSDL and CDSL through intermediaries or Depository Participants or Stock Brokers etc.
- The charges will vary as per the volume held in the account, type subscribed, the terms and conditions laid by the depository and the Depository Participant (DP).
- The regular demat account eliminates the risk of misplacement, damage, theft and forgery etc.
2. Repatriable Demat account:
- This account is for Non-Resident Indians (NRI) as it allows fund transfers across abroad.
- It requires an associated NRE bank account.
- This account is useful to the Non-Resident Indians (NRI) as it allows fund transfers in foreign countries.
- Those who want to hold a Repatriable Demat Account will require an associated NRE bank account.
- NRI demat accounts will also have nomination facility.
- The Reserve Bank of India (RBI) guidelines mandate NRIs to open a trading account with a designated institution authorised by the RBI.
- An NRI will have to avail either a Non-Resident Ordinary (NRO) or Non-Resident External (NRE).
- There are two options available for NRI which are PINS Account or Portfolio investment NRI Scheme.
- This account allows NRI to buy and sell of equities through the stock exchanges in India.
- For opening a Repatriable Demat account, an NRI should produce a copy of passport, copy of PAN card, copy of Visa, overseas address proof such as utility bills, lease agreement, sale deed, passport size photograph, FEMA declaration and cancelled check leaf of NRE or NRO account.
- All these documents should be attested at the Indian Embassy of the country where the NRI resides.
3. Non-Repatriable Demat account:
- This account is also for the Non-Resident Indians. But here, funds cannot be transferred abroad and this account requires an associated NRO bank account.
- However, here, funds cannot be transferred abroad and this account requires an associated NRO bank account.
- As per the guidelines stipulated by the Reserve Bank of India (RBI), a non-resident Indian can only hold up to 5% of paid-up capital in an Indian company.
- An NRI can invest in Initial Public Offers (IPOs) on a repatriable basis by using an NRE demat and funds in their Non-Resident External (NRE) bank account.
- If a person already has a demat account before gaining the status of NRI, then it can be converted into the NRO category to trade after leaving the country or open a new account.
- In both cases, previously owned shares will be transferred to the new NRO holding account.
- An NRI can also use their demat account through Portfolio Investment Scheme (PINS) to make investments in India.
- The PINS plan permits an NRI to transact in shares and mutual fund units.
- A PINS account works similarly to an NRE account.
- Even when NRIs have an NRE account, a separate PINS account is mandatory for trading in equities.
- Only one PINS account can be maintained at a time.
- Non-PINS account can be classified as NRE and NRO Non-PINS account.
- Transactions made through NRE can be repatriated, while NRO transactions cannot be repatriated.
- The NRO Non-PINS accounts allow trading in futures and options.