Dematerialised accounts, more commonly known as a Demat Account, are used by investors to hold their shares electronically. The introduction of these accounts eliminated the need of holding shares physically which was a clumsy task. Like earlier, investors were given share certificates which they had to keep safely with them. The entire process of share trading was difficult because of this as there were cases of forged or fake certificates in the market. Also, loss or damage to these security papers became a common issue.

Taking all these problems into consideration, the concept of Demat Accounts was brought into existence in 1996. There are only two major depositories in India who maintain all the Demat Accounts. They are:

1. National Security Depository Limited (NSDL)
2. Central Depository Services Limited (CDSL)

What Is a Demat Account?

If you are new in the stock market, the concept of Demat Accounts might seem confusing to you. “What is meant by Demat Account?” is a commonly asked question. A Demat Account is used for holding financial securities (equities or debts) in the electronic form. You can use this account for an array of investments like shares, mutual funds, debt securities, ETFs (Exchange Traded Funds), government securities, etc.

A Demat Account can be a very helpful tool in managing shares and other securities. Source: Pixabay

Types Of Demat Accounts

Now that you know what is Demat Account, it is important to know how many types of Demat account there are for you to choose from.

●    Regular Demat Account

This account is used by investors who hold citizenship of India and reside in the country. The two depositories, NSDL and CDSL provide services of this account through intermediaries, commonly termed as Depository Participants. The aim of a regular Demat Account is to make trading services simpler and better. When you make a purchase of shares, it will be credited to your account and alternatively, if you sell any share it will be debited from your account.

Previously, before the introduction of Demat Accounts, this simple process used to take weeks or months depending upon the circumstances. The physical holdings of shares also had certain formalities like buying share market stamps and pasting it on the documents every time you buy or sell it. This was not only a cumbersome process but also a time taking one. A regular Demat Account saves you time and effort.

The process of opening this account is as simple as any other bank account. The electronic media also enables easy to change address or other details whenever need be.

●    Repatriable Demat Account

The NRIs can also make investments in the Indian share market easily with the help of repatriable Demat Accounts. If you are an NRI (Non-Resident Indian), opening this account can help you in simplifying your trade experience. All you need to do is follow certain rules and regulations which are laid out by the government of India. You can also take the help of any renowned Depository Participants to understand what is Demat Account and how it works.

In order to make use of your repatriable Demat Account for trading in shares in India, you will need to associate your NRE bank account with it. Also, you have to follow the rules of the Foreign Exchange Management Act (FEMA). As per the guidelines of the RBI (Reserve Bank of India), every NRI must open a trading account in order to route their investments. It can be either an NRO (Non-Resident Ordinary) or an NRE (Non-Resident External) account depending upon your requirements.

However, you need to know that there is no option of funds repatriation using an associated NRO account. Along with the general documents that are required for opening a Demat Account, you will have to produce some other things for the repatriable one. FEMA declaration certificate, copy of Visa, address proof of the overseas residence, etc. must be produced.

●    Non-Repatriable Demat Account

Non-Resident Indians also have an option of a Non-Repatriable Demat Account. As the name suggests, the funds of these accounts cannot be transferred abroad. There is no denying the fact that you face difficulties in managing your finances as an NRI because of the difference in currencies. Especially in the case of the share market, there are so many regulations that you need to follow. The aim of this Demat Account is to make things easier for you. If you are living in another country for a temporary period of time, this account is your best option for trading in shares.

However, you must know that the Reserve Bank of India restricts an NRI’s shareholding in an Indian Company. So, you can only hold 5% of the paid-up capital in any company in India. Also, if you already have a Demat Account then you need to convert it into the NRO country before departing from the country. Alternatively, you can also open a new account as the funds are transferable in both cases.

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What Are The Documents Required For Opening A Demat Account?

The Depository Participants offer the facility of Demat Accounts in India. They would need you to submit specific documents depending upon the type of account you want to open. The list of required documents includes the following items:

Income Proof

• A copy of your ITR (Income Tax Return) slip.
• Your latest salary slip.
• Latest bank account statement containing the records of minimum 6 months.
• A certificate of your net worth or annual statement of your accounts which must be authenticated by an eligible CA.

Identity Proof

• Your PAN (Permanent Account Number) card.
• Your valid passport / aadhar card / driving license / voter ID card.

Address Proof

• Any of your identity proof.
• You may also provide utility bills like electricity/gas bills or landline telephone bills which are less than 3 months old.
• Self-declaration certificate which is legally attested by the high court of your state in case you have shifted to a new address recently which is not yet updated in other documents.

You may produce any of the above categorized documents along with two passport size color photos.

For every Indian who wishes to make investments in the Indian share market, there is a Demat Account. You can enhance your trading experience with this advanced facility offered by the Depository Participants.

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