Are you a non-resident Indian trying to open a Demat account in India? Or do you need a Demat account for your child, who is a minor? If you are thinking about why you cannot open a general Demat account if you are an NRI or for your child, then here is the answer.
There are different types of Demat accounts in India for NRIs, minor children, and even corporate houses. This article will cover the different types of Demat accounts, their benefits/ features, and how you can open them.
What is a Demat account?
Before we dig into the different types of Demat accounts, let’s understand the meaning of Demat accounts. So, a Demat account holds all the securities you have with yourself. In simple words, it is like a bank account that holds all your securities, like banks hold your money in the account. When you purchase securities, they are credited to the Demat account, and when you sell them, they get debited.
Demat accounts hold securities in digitalized format, and without a Demat account, it is impossible to trade or invest in India as per SEBI guidelines.
Types of Demat account
Demat accounts can be classified into three broad categories –
1. Regular Demat Account:
A regular Demat account is for Indian residents only, whether it is an individual, corporate house, or a minor. Regular Demat accounts can be further classified into three types which are –
2. Individual Account:
This is the most common Demat account you see, which individual investors and traders open to trade and invest in securities. If you are trading stocks, commodities, and other assets apart from derivatives or investing in them, you need to open a Demat account in your name.
An individual Demat account can be opened with any brokerage house or banking organization providing similar services. You need your PAN, AADHAAR, bank details, and photographs to open this account.
Corporate Account:
The next in line is the corporate Demat account. These are also regular Demat accounts opened for corporates such as HUF, Partnership Firm, Limited or Private limited companies, Trusts, LLPs, Government Bodies, Banks, co-operative societies, clearing members, corporate domestic promoters, mutual fund houses, Foreign LP, Foreign Banks, and others.
Corporate accounts are different from individual accounts because, in this account, there are more transactions compared to a retail trader’s account. Corporate Demat accounts help in easy and immediate transfer of shares, auto-dividends, and auto-credit of stocks are some benefits that corporate Demat accounts get over individual Demat accounts. As a body corporate, you cannot open an individual account. You have to open the Demat account using the PAN of the corporate body and in the case of HUF, the PAN and other documents of the Head of the HUF.
Minor Account:
Minor Demat accounts are special Demat accounts that are highly regulated and restricted by SEBI. One can only open a Minor Demat account if securities need to be sold that are in the name of the minor. Even the sale of securities via a Minor Demat account can be carried if the minor has acquired those securities by –
- Investing in an IPO
- Inheritance
- Off-market transfers such as Gifts or donations, transfer between family members, or implementation of government or regulatory directions or orders.
- Corporate actions
Minor Demat accounts cannot be used to trade or purchase securities. It can only be used for selling the securities and must be handled by the natural parents of the minor. In case of the absence of natural parents, a guardian, who is appointed by the court, can handle the account.
For opening a minor Demat account, you need to share documents of the minor as well as the parents, who are going to handle the account till the minor becomes a major.
Repatriable Demat Account:
The second broad classification of Demat accounts is Repatriable Demat Account. This is an NRI Demat account used for transferring wealth abroad. It must be linked to a Non-Resident External (NRE) bank account. Once you become an NRI, you cannot access your regular Demat account in India as they are for resident Indians. Then you have to open the Non-Resident Ordinary (NRO) Demat account for transferring all the shares. If you want to sell the securities, you can sell securities worth a maximum of USD 1 million in a calendar year. This is a restriction on repatriation that comes into force in the NRO Demat accounts. Thus, these Demat accounts are known as Repatriable accounts.
Non-Repatriable Demat account:
This is also an NRI Demat Account, but you cannot transfer the shares abroad using this account. Moreover, you need to link your NRO bank account with the Demat account.
So, while opening your Demat account, ensure that you check which type of Demat account is right for you, and you can open it in India. It will help you keep your securities safe and also help in securities trading and investments.
