A Dematerialization account is where you hold shares in a digital or electronic
form. It enables you to buy shares & securities and store them safely. Just like a
bank account, you can use a Demat account to hold all your investments such as
bonds, shares, securities, ETFs, mutual funds, etc. Once you buy shares, they
get credited to your Demat account. Similarly, after you sell your shares, they get
debited from your account. If you currently have physical shares, you can convert
them into dematerialized format in your Demat account. Also, different types of
dematerialization accounts are meant for different purposes.
In this blog, we will learn the main types of Demat accounts for your better
understanding.
Regular Demat Accounts
Regular Demat accounts are meant for traders residing in India or are Indian
citizens. They are perfect for traders dealing in equity shares alone. You buy
shares, you store them in the digital format in your Demat account. Once you sell
shares, they get removed from your account. A regular Demat account is not
required for trading in futures and options. Why? Since futures and options come
with expiry dates and, hence, don’t have to be stored.
Indian citizens with a regular Demat account can transfer their holdings from a
current Demat account to a new institution without having to pay any extra cost. If
you want to transfer it to a joint Demat account, you need to open a new account
under the same name.
Repatriable Demat Accounts
A repatriable Demat account is suitable for non-residents of India (NRIs) wishing
to invest in the Indian Stock Market. They can participate from any part of the
world and yet such transactions will be easily reflected in their Demat account.
A repatriable account helps NRIs transfer their holdings to multiple foreign
countries. Though, non-residents of India thinking to have a repatriable Demat
account are required to have an associated NRE bank account.
Once you become an NRI, you have to close the Demat account you held as an
Indian resident. Next, you can transfer the shares to a Non-Resident Ordinary
(NRO) Demat account. When you sell your shares, a restriction on such
accounts comes into force. You can repatriate not more than USD 1 million in a
calendar year.
A Non-Resident Indian (NRI) interested in repatriable Dematerialization accounts
must strictly follow the rules as shared by the Foreign Exchange Management
Act (FEMA).
Moreover, RBI has mandated for NRIs to open a trading account with a
recognized institution authorized by RBI.
So to hold an investment, NRI traders need to have either a Non-Resident
Ordinary (NRO) account or a Non-Resident External (NRE).
Non-Repatriable Demat Accounts
These accounts are quite similar to the repatriable ones and are meant for NRIs.
However, here, an NRI can’t transfer the funds foreign as he needs an
associated NRO bank account.
NRIs earning in both India and abroad face real challenges when it comes to
finances. It’s additionally challenging to track their bank accounts in a foreign
country and transfer money to their home account.
Having NRE and NRO accounts allows them to overcome these challenges
easily.
An NRI holding a Demat account prior to becoming a non-resident of India can
convert the account into the NRO category once he has left the country or
opened a new account for trading.
In both cases, the previous shares get transferred to the holding account of NRO.
Conclusion
Demat accounts are compulsory for trading in the Indian stock markets. Since
different types of Dematerialization accounts serve different purposes, you can
pick one that best suits your needs and start trading today!
