Meaning Of Demat Account

Dematerialized securities are securities that exist only in an electronic format and are held in a demat account. These digital securities are not only readily retrievable, but also kept in a safe environment inside an online archive that requires a password to access. Without a Demat account, trading is not even a possibility to consider.

Types Of Demat Account

Trading is available to both non-resident Indians and Indian residents using the demat accounts listed as follows:

Repatriable Demat Account:

Through the utilisation of a repatriable account, non-resident Indians are likewise able to trade or invest in Indian stocks. It makes it possible for dealers to shift money across international borders. One of the drawbacks of opening a repatriable demat account is the need to have an external bank account held by a non-resident financial institution. For a Demat account of this kind, you will need to have an NRE bank account. You are required to close the Demat account you held when you were a resident of India if you ever become a non-resident of the country. After your account has been closed, you will be able to transfer your shares to a non-resident ordinary demat account (also known as an NRO account). Let’s say you have the intention of selling your shares. In this particular case, a restriction on repatriation is imposed. This restriction on repatriation permits you to bring back into the country no more than one million dollars throughout each calendar year, which begins in January and ends in December.

Regular Demat account:

All Indian business owners and investors will find that this particular Demat account meets all of their needs. Because it is ideal for the majority of individuals who exclusively deal in equity shares, this particular Demat account is the one that is utilised the most often. The stocks that are acquired and sold in digital format are kept safe in a demat account that is maintained on a regular basis. Have in mind that you do not need to keep a regular Demat account in order to trade futures and options. This is something you should keep in mind. Futures and options both have a date when they will become worthless, thus they do not have to be held in a Demat account perpetually. The Securities and Exchange Board of India (SEBI) has introduced a brand new Demat account type, which is being referred to as the Basic Services Demat Account (BSDA).  The objective of the BSDA was to encourage financial inclusion by giving investors who have not yet participated in market activity the opportunity to do so via the use of any one of the several types of demat accounts that are accessible online.

Non-Repatriable Demat Account:

It is especially suited for non-resident Indians. One’s assets and wealth cannot be moved between nations in this type of demat account online. Both a non-repatriable demat account and a repatriable demat account require that funds be connected to a conventional bank account held by a non-resident of the country concerned. In order to participate in the stock market in any capacity, including buying and selling shares, you are required to first open both a demat account and a trading account. However, you must be aware of a variety of accounts, such as what is a BO ID, what is a trading account, what is a Demat account and the many types of Demat accounts, several classes of accounts, and so on.

An Important Point To Consider

The common misconception is that you must open both a trading and a Demat account at the same time. Actually, you can only open one of these accounts. For example, if you wish to invest in an IPO, a Demat account is all you need. The shares will be credited to your Demat account after they are assigned to you. The only caveat is that you won’t be able to sell the shares unless you have a trading account. As a result, if you are purchasing shares only with the intention of keeping them for the long term, a Demat account is adequate. However, if you merely wish to trade futures and options, you do not need to register a Demat account. Because F&O does not result in delivery, a trading account will suffice. A Demat account is only required if you wish to invest in stocks.

Discount Brokerage Vs Full-Service Trading Accounts

This distinction has been more important over the last several years as a direct consequence of the proliferation of discount brokers, who facilitate the trading of huge quantities at a reduced price. These discount brokers do not provide any research or other advisory services to their customers. They just carry out transactions, which enables them to provide their services at a charge that is far lower than average. In a similar vein, the majority of discount brokers do not provide any offline trading capabilities other than a call-and-trade service, which is often an additional paid service.

The full-service approach will demand a higher brokerage fee but will include a slew of other services. There is, for example, short-term calls, research, an advisory desk, and consultants to assist you if you get stranded in situations. These are some of the premium features you will get if you choose a full-service trading account over a standard discount brokerage account. The commodities trading account allows you to trade on the MCX and NCDEX, whilst the trading account allows you to trade on the NSE and BSE. Remember that you must create a separate commodity trading account as well as a separate commodity Demat account in order to trade commodities.

Wrapping Up

Participation in the Indian stock markets now requires a Demat account. There are several types of demat accounts in India, each serving a distinct function. The procedure of creating a regular demat account for a resident Indian is quite easy. It is possible to do so via a broker of one’s choosing. However, the regulations are different for NRIs. Certain limits have been imposed on them. NRIs must follow the FEM Act requirements, which require them to establish significantly modified types of demat accounts.