A DEMAT account makes investing hassle-free. Its introduction has greatly expanded the reach of financial securities for retail investors. The number of active demat accounts has risen by 63%, to 89.7 million in FY22. A Demat account full form is a dematerialized account that helps us to invest in stocks within a minimum time. Explore the post to learn about the types of DEMAT accounts and how to open one for yourself for free.
Types of DEMAT Account
Regulatory law in India allows you to open a depository as per your investing needs. There are two types of DEMAT accounts.
1. Basic Services Demat Account (BSDA) for Indian Investors
Many retail investors are interested in equities but do not encash the opportunities due to the burden of investing costs. BSDA has reduced the investment cost for small investors. It is an account that comes with a limit to hold your investments. BSDA can hold your stock market investments valued at a maximum of Rs. 2 lakhs.
Here are the basic features of BSDA:
- Account Maintenance Charges (AMC): Most stockbrokers offer a BSDA for free, and there is no AMC if your demat holding value is less than Rs. 50,000.
- One should note that the stockbroker estimates the limit at Rs. 2 lakh daily. It means the closing value of the investments you hold in your BSDA should not exceed Rs. 2 lakhs each day. If, on any given day, the value increases by more than Rs. 2 lakhs, the broker can levy the charges concerning a regular demat account from that date on.
- A BSDA is available for individual investors only. It cannot be opened in the name of HUF (Hindu Undivided Family). Also, as per SEBI guidelines, an individual can open only one BSDA account.
- An investor can convert a regular demat account to a BSDA if their holdings are consistently less than Rs. 2 lakh. In the written request, the demat account holder must mention the reason to change the status of your account into a BSDA account.
2. Regular Demat Account for Indian Investors
A regular demat account is a restriction-free demat account to hold the number, type, or value of your investments in the stock market.
- You can invest and hold multiple securities to meet your financial goals at any point in time. The investment values can be in thousands, lakhs, or crores as per your investing capacity.
- Stockbrokers charge account maintenance charges (AMC) on an annual basis. You can save on AMC of a regular demat account with a discount stock broker as they do not charge AMC for the first or two years of opening the demat account.
- With the subscription-based brokerage plans offered by discount brokers, you can open a free regular demat account.
3. Repatriable Demat Account for NRIs With an NRE Account
Non-Resident Indians (NRIs) need to open a repatriable Demat account to invest in the Indian share market from any territory in the world.
- Individuals having a Non-Resident External (NRE) bank account can open a repatriable demat account that helps NRIs transfer funds to foreign countries. Thus, it is an NRI DEMAT account.
- It can be a joint account with a citizen of India. NRI DEMAT accounts have a nomination facility. NRIs who want to open a repatriable DEMAT account and invest in India must follow the rules of the Foreign Exchange Management Act (FEMA). They have to invest in the Indian currency, i.e., rupees.
4. Non-Repatriable Demat Account for NRIs with NRO Account
- A non-repatriable Demat Account is also an NRI Demat Account. An individual with a Non-Resident Ordinary (NRO) bank account can open this DEMAT account.
- This account does not allow investors to transfer funds abroad.
NRIs can invest in IPOs (initial public offerings) on a repatriable basis using an NRE demat account. Thus, look at your investing needs and consider opening the right type of account with a discount broker after an easy online demat account opening process and saving on investing costs.