Demat Account - Meaning and Types

Demat Account - Meaning and Types You might have already heard of the term ‘Demat account’. If you are planning to invest in the stock market, you need to have a Demat account as per the regulations of SEBI. But what is a Demat account and why do you need it? Let us learn more about the Demat account in the below article.

What is a Demat Account?

It is an account that allows the investors to keep their shares and securities in an electronic form. It is very similar to a bank account and helps the investors hold their shares, bonds, and other securities in a dematerialized form.

Demat stands for ‘Dematerialization’. In other words, it is the process of converting physical shares into an electronic form. Ever since Demat accounts were introduced in 1996, holding shares and securities has become a lot easier and hassle-free. In 2019, having a Demat account was made compulsory by SEBI for trading on any stock exchange in India.

Let us understand how a Demat account works with the help of an example.

Mr. Rahul wants to buy the shares of company Y. Before Demat Account - A physical share certificate had to be issued to the investor for the purchase made. This involved a lot of paperwork and was a very time-consuming process. The same amount of work had to be done every time an investor wanted to sell his shares.

After Demat Account - As soon as the investor makes a purchase, the shares are credited to his DP or Demat account. It involves no paperwork and happens within a few hours

Types of Demat Account Now that we are aware of the meaning of a Demat account and how it works, let us learn about the 3 types of Demat accounts available in India ●

Regular Demat Account - A regular Demat account is the standard account that is primarily used by investors residing in India. This account is used by the investors to make purchase and sales transactions on the stock exchange. Unlike physical shares, the transfer is completed within a few hours using a regular Demat account.

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Repatriable Demat Account - A repatriable Demat account is an account that can be used

by Non-resident Indians (NRI) for trading on the stock exchange. These accounts allow the investors to easily transfer their funds to foreign countries. The investor should have an NRE bank account to open a Repatriable Demat account.

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Non-Repatriable Demat Account - A non-repatriable Demat account is similar to a repatriable Demat account. It can also be opened by non-resident Indians (NRI) investors. But, this account does not allow the transfer of funds to foreign countries. Unlike a repatriable Demat account, a non-repatriable Demat account needs to be linked with an associated NRO account.

Demat Account Opening - Steps to Follow If you are pondering upon how to open a Demat account, given below are the simple steps for Demat account opening Step 1. NSDL and CDSL offer Demat accounts to investors through various share brokers and financial institutions. The first step is to choose the Depository Participant (DP) with whom you want to open a Beneficial Owners (BO) account.

Step 2. Fill out the account opening form and attach copies of all the required documents. Keep your PAN card ready as it is mandatory to open a Demat account.

Step 3. Read the copy of all the rules and regulations and the charges to be paid. A physical verification will be conducted to verify all the details provided by you.

Step 4. After verification, your application is approved and your Demat account becomes operational.

Opening a Demat account has been made compulsory by SEBI. You must have a Demat account if you plan to invest in the stock market. Although opening a Demat account involves some charges, it makes trading easy and quick.