Meaning: A Demat account helps investors hold their shares, bonds, government securities and mutual funds in an electronic format. It is also known as dematerialization account. Similar to a bank account, a Demat account is either credited or debited each time you buy or sell shares of a company. Demat account helps in providing a streamlined process for trading. In India, Demat accounts are maintained by two organizations, namely National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Types: In India, there are primarily three types of Demat accounts offered by depository participants which are given as follows-
1. Regular Demat Account: This account is for Indian citizens residing within the country.
2. Repatriable Demat Account: It is one of the Demat accounts that can be used by non-resident Indians (NRIs) and enables them to transfer money abroad. This needs to be linked with a non-resident external (NRE) bank account.
3. Non-Repatriable Demat Account: This is another Demat account which is accessible to non-resident Indians (NRIs) but funds can’t be transferred abroad with this. It needs to be linked with a non-resident ordinary (NRO) bank account.
1. Eliminates risk of paper-based share certificates: Before the introduction of Demat account, shares existed as physical paper certificates and anyone who owned them had to take extra care as they were vulnerable to theft, tampering, loss and forgery. They were also prone to errors and delays which made the process of buying shares harder.
2. Convenient and efficient share storage and transfer: Demat account allows you to store n number of shares so you can trade freely and also monitor the details of the shares that you are holding.
3. Easy Access Online: Demat account is easily accessible online, so you can check it anywhere with your phone and laptop.
4. Nomination: As per the process described by the depository, Demat account also provides the facility of nomination. In case of the investor’s demise, the account can be the transferred to the nominee.
5. Increases Transparency: Demat account shows all the necessary information to the investors which makes the process safe and transparent.