A Demat (i.e. a dematerialised) account holds shares in digital/ electronic format. A Demat account allows you to buy shares and store them safely. It is similar to your bank account. A Demat account can be used to hold a variety of investments including shares, bonds, ETFs, mutual funds, government securities etc. When you purchase shares, it will be credited to your Demat account and similarly, when you sell, it will be debited from your account. Any shares you are holding in paper form can also be dematerialised and stored in electronic form in your Demat account. There are basically three different types of Demat accounts that cater to different investors:
Regular Demat account: This type of account caters to traders who are Indian citizens and reside in India.
Repatriable Demat account: This account is useful to the Non-Resident Indians as it allows fund transfers abroad. It requires an associated NRE bank account.
Non-Repatriable Demat account: This account, too, is for the Non-Resident Indians. However, in this case, funds cannot be transferred abroad, and this account requires an associated NRO bank account.
Different Types of Demat account
Regular Demat Account
Traders who are Indian citizens and reside in India use this type of account. In India, Regular Demat account service is provided by depositories such as NSDL and CDSL through intermediaries / Depository Participants / Stock Brokers etc. The charges in the case of regular Demat account vary as per the volume held in the account, type subscribed, and the terms and conditions laid by the depository and the Depository Participant (DP).
A Regular Demat account aims at making trading operations simpler. Transfer of shares can be carried out easier than ever, and it can be completed within a few hours as compared to weeks or months, taken previously. Since the regular demat account allows the investor to hold shares in the electronic form, it eliminates the risk of misplacement, damage, theft, and forgery, as was the case with physical shares. Convenience is another area which a regular Demat account offers. It has done away with, cumbersome processes like buying and pasting share market stamps, and restrictions on selling shares in odd lots thereby helping us to save some money too. Thus, a Regular Demat Account makes the process of dealing with stocks and shares simple and convenient.
Other than the making handling and storing of shares safer and making operations simpler a Regular Demat account helps us to do away with paperwork, making it a cost-effective activity. The procedure to change address and other details too have been made seamless and less time-consuming with the advent of Regular Demat accounts.
Regular Demat account holders, i.e. traders who are Indian citizens and reside in India, can also transfer their holdings from an existing Demat account to another institution without any additional charge. If a Regular Demat account holder wishes to transfer a joint Demat account, then they will have to open the new one in the same names.
Repatriable Demat account
By opening a Repatriable Demat Account, an NRI can make investments in the Indian share market very quickly from any part of the world. The transactions immediately reflect in the demat account. This account is useful to the Non-Resident Indians (NRIs) as it allows fund transfers in foreign countries. Those who want to hold a Repatriable Demat Account will require an associated NRE bank account. Just like a Regular Demat Account that can also have joint holders who should be citizens of India irrespective of the resident status, NRI demat accounts have nomination facility.
In India, though both residents and non-residents can make use of demat account to trade in shares, if a Non-Resident Indian (NRI) wants to open a repatriable demat account, he/she will have to follow the rules of the Foreign Exchange Management Act (FEMA).
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) account to route his/her various investments. Types of Demat Account options available for NRIs are:
PINS Account or Portfolio investment NRI Scheme: This account allows NRIs the buying and selling of equities through the stock exchanges in India. This can be further classified as NRE and NRO PINS accounts. While Portfolio investment NRI Scheme demat accounts allow for transactions where the funds can be repatriated to foreign countries, NRO PINS account does not allow fund repatriation for executed transactions.
For opening a Repatriable Demat account, an NRI should produce a copy of passport, copy of PAN card, copy of Visa, overseas address proof, like utility bills, or rental/lease agreement, or sale deed, passport size photograph, FEMA declaration, and cancelled check leaf of NRE/NRO account. All these documents should be attested at the Indian Embassy of the country where the NRI resides.
Non-Repatriable Demat Account
Non-Repatriable Demat Account, too, is for the Non-Resident Indians. However, in this case, funds cannot be transferred abroad, and this account requires an associated NRO bank account. An NRI, with earnings both abroad and in India, genuinely faces difficulties in managing his/her finances. They also find it difficult to monitor bank accounts in a different country, and while trying to repatriate money to their home account. With NRE & NRO demat accounts they can have their peace of mind.
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 his/her Non-Resident External (NRE) bank account. If an NRI invests on non-repatriable basis, then the Non-Resident Ordinary Rupee (NRO) account and NRO demat will be used.
If a person already has a demat account before gaining the status of NRI, then he/she can convert it 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 his/her 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. NON-PINS Account is used for investing in Initial Public Offerings (IPO) or investments made in mutual funds and as residents. It is important for an NRI to remember that he/ she can maintain only one PINS account at any point of 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. Also, the NRO Non-PINS accounts allow trading in futures and options.
What is an NRE (Non-Resident Rupee) Account?
An NRE account is an Indian rupee-denominated account, offering complete security. These accounts can be in the form of current, savings, recurring, or fixed deposits. The foreign currency you deposit into the account is converted to Indian rupee. You can transfer your funds (principal as well as interest) to a foreign account from an NRE account without any complications and restrictions. However, the amount you deposit into these accounts must be earned outside India.
What is an NRE account mainly used for?
NRE account is primarily used for carrying out business, personal banking and making investments in India. The international debit card enables you to transact and withdraw money 24x7. Also, mutual fund investments too become effortless and instant, if you link your NRE account number to the investment account.
What is a Non-Resident Ordinary Rupee (NRO) Account?
An NRO account is a savings or current account held by NRIs in India to manage their income earned in India. Account-holders can deposit and manage their accumulated rupee funds without any hassle. You can apply for an NRO account jointly with a resident Indian or even an NRI. The account allows you to receive funds in Indian or Foreign currency. It is even feasible to transfer money from your current NRE account. However, the interest you earn in this account is subject to (TDS) Tax Deducted at Source payments.
How is an NRE Account different from NRO Account?
Repatriation is free for NRE account holders for both the principal and the interest amount. An NRO account has limited access for repatriation. It restricts you from remitting more than $1 million inclusive of taxes during an assessment year. You can repatriate the interest amount freely, but the principal amount can be repatriated only within the set limits. It also requires an undertaking along with a certificate from a Chartered Accountant. Also, an NRE account is tax-free (no income tax, wealth tax, or gift tax) in India, while, the interest earned in NRO account and credit balances are subject to respective income tax bracket. They are also subject to applicable wealth and gift tax.
Can I hold a joint NRE account along with another NRI?
You can have a joint NRE account only if both the parties are NRIs. On the other hand, you can open an NRO account with another NRI or a resident Indian (a close relative) as mentioned under Section 6 of the Companies Act 1956.
Am I eligible to open a Demat account for trading?
If you're a resident of India and over 18 years of age, you're eligible to open a Demat account. You will need to submit valid address and identity proofs along with the account opening form.
Can I trade in derivatives?
If you’re a resident of India and over 18 years of age, you are eligible to open a Demat account and trade in derivatives. You will need to submit valid address and identity proofs along with the account opening form.