To open demat account, an investor has to approach a depository participant who can help them in the trading process. Dematerialization is a way to convert physical investment securities/certificates such as mutual funds, shares, bonds, exchange-traded funds, debentures, etc. into an equivalent number of securities in an electronic form. These securities are then credited into your demat account with your selected depository participant (DP), which could be either be a brokerage firm or a bank.
To handle the process of Dematerialization, the National Securities Depository Limited (NSDL) was the first depository established in India in the year 1996 followed by Central Depository Services Limited (CDSL) in 1999.
With the help of Dematerialization, trading has become much simpler and manageable for an investor. With this in mind, let’s have a look at the different types of demat accounts available in India.
Basic Services Demat Account (BSDA)
The BDSA is intended for small investors whose holding ability of securities or investment certificates does not exceed more than a few lakhs. Therefore, the annual maintenance charge (AMC) for this account is economical. BSDA was launched in August 2012, in which the holders are not charged an AMC for holding security valued up to Rs 50,000. For holding security valued between INR 50,000 to INR 2 lakh, the yearly maintenance charge is INR 100, while if it is over INR 2 lakh, the tariff of a regular demat account applies.
Regular Demat Account
It is a normal demat account which holds all your shares and securities that you’ve bought in dematerialised form. This type of demat account is similar to a bank account wherein instead of holding money, you hold securities. A demat account can also be operated by a small investor. As opposed to BSDA, the fee for this account is slightly higher but the services and convenience it offers are worth it.
Repatriable Demat Account
A repatriable demat account is used by non-resident Indians (NRIs) through which funds can be transferred overseas. Repatriable funds need to be stored in a separate bank account called an NRE bank account. Generally, funds brought in from overseas are kept in the account, and the investments made from such funds can be repatriated.
Non-Repatriable Demat Account
A non-repatriable demat account is used by NRIs under in which the funds cannot be transferred overseas. Non-repatriable funds must be held separately from the repatriable funds in another bank account called an NRO bank account. Once the funds are transferred from the NRE account to the NRO account, it loses its repatriability and thus can’t be transferred back to NRE account.
Benefits Of A Demat Account
As per the Depository Act, 1996, it is not necessary to dematerialize your physical certificates and you have the chance to hold securities in either dematerialised or physical form. However, if you wish to trade (purchase and/or sell) your securities, then holding a demat account is always beneficial!
Let’s’ have a look at the top benefits of a demat account.
Dematerialization is not only a platform for trading shares, but it can also be utilized for debt instruments such as bonds. Moreover, you can hold all your investment securities in a single demat account!
Since the demat account is common, an investor doesn’t need to give out all his contact details such as addresses and PAN card number every time they transact or change the details with a depository. The details are automatically updated and made accessible to organizations you transact with. Though, an investor needs to complete the KYC process at the time of opening the demat account so as to operate it smoothly.
Before Dematerialization, an investor had to transfer securities and physical certificates, which incurred additional costs due to the stamp duty. But, it is not a problem with the demat form and transactions are made at a much cheaper cost.
Dematerialization has also eliminated the chances of thefts, fake shares, manipulation, etc., and decreased the paperwork associated with filling physical shares. Moreover, the time of delivering, buying or selling a security has also reduced drastically. Once the trade is confirmed, the securities are automatically credited to your demat account! This also applies to different company-related ventures such as stock bonuses, stock splits, and so on.
Easy To Maintain
Paper documents are vulnerable to damage and tears. On the other hand, in a dematerialised or demat format, your securities are safe and conveniently stored in one place. An investor also has the nomination facility, whereby they can facilitate a transfer of securities in the case of an investor’s demise.
After understanding different types of demat accounts, an investor should carefully determine the kind of account that suits them best in order to get the maximum benefits of trading electronically.