Demat Account in India – Complete and Comprehensive Information.

What is a Demat Account?

Demat Account is quite similar to your bank account in which you save your money. Same ways in a Demat account you keep your shares in a dematerialized form or you may say you convert your physical share certificates in an electronic form.

FREE Demat + Trading Account:

Indian capital market has seen unprecedented boom in its activity in the last 15 years in terms of number of stock exchanges, listed companies, trade volumes, market intermediaries, investor population, etc. However, this surge in activity has brought with it numerous problems that threaten the very survival of the capital markets in the long run, most of which are due to the large volume of paper work involved and paper based trading, clearing and settlement.

Until the late eighties, the common man kept away from capital market and thus the quantum of funds mobilized through the market was meager. A major problem, however, continued to plague the market. The Indian markets were drowned in shares in the form of paper and hence it was problematic to handle them. Fake and stolen shares, fake signatures and signature mismatch, duplication and mutilation of shares, transfe­r problems, etc. The investors were scared and were under compensated for the risk borne by them. The century old system of trading and settlement requires handling of huge volumes of paper work. This has made the investors, both retail and institutional, wary of entering the capital market. Government of India decided to set up a fully automated and high technology based model exchange that could offer screen-based trading and depositories as the ultimate answer to all such reforms and eliminate various bottlenecks in the capital market, particularly, the clearing and settlement system in stock exchanges. A depository in very simple terms is a pool of pre-verified shares held in electronic mode which offers settlement of transactions in an efficient and effective way.

Object of a Dmat Account System:

India has adopted this system of electronic bookkeeping, eliminating the need for paper when shares or securities are held in electronic form. Before the introduction of the depository system by the Depository Act, 1996, the process of sale, purchase and transfer of shares was difficult and there was a high risk of loss.

Reduction of scams:

The need for a demat account arose when several scams broke out in the stock market. You cannot trade in different names anymore. Many NRI – non resident Indian investors were found to conceal their share trading profits by operating under different names, while some big players even managed to tune the market to their advantage. There were unnecessary bull runs or bearish tendencies in the market as large lots were sold.

Small investors suffered immensely as they lost much of their savings in the process. With the opening of the NRI demat account, any previously held share that is on paper can be dematerialized and any shareholding in your name would be reflected.

Stay updated:

Whenever you want or according to the system of the DP, you would get a statement of accounts that would reflect your current position. After you open a demat account online, for the purposes of share trading at the Indian stock exchange, you would be given a unique beneficiary owner identity number that would serve as a reference for all share transactions. You need the delivery slips for selling shares and you can collect them from your DP. By opening a demat account, you bring out in the open all that you hold and every information regarding your holdings is clear and open.

Demat Benefits:

Ø      It’s a safe and convenient way to hold securities

Ø      Immediate transfer of securities

Ø      There is no stamp duty on transfer of securities

Ø      Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.

Ø      There is a major reduction in paperwork involved in transfer of securities, reduction in transaction cost etc.

Ø      Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;

Ø      Transmission of securities is done by DP eliminating correspondence with companies;

Ø      Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.

Ø      Holding investments in equity and debt instruments in a single account.

How can a NRI access the Indian capital market?

NRIs are permitted to make direct investments in shares/debentures of Indian companies/ units of mutual fund. They are also permitted to make portfolio investments i.e. purchase of share/debentures of Indian Companies through stock exchange. These facilities are granted both on repatriation and non-repatriation basis. These days opening a bank demat account is very easy. You can approach any broker these days and ask them provide you the lowest trading commission and fees after they open a free bank demat account for you.

Guidelines for NRI Investments in the Indian Equity Market:

All NRIs/PIOs (Person Of Indian Origin) are allowed to invest in Indian Stock Market through a special purpose vehicle proposed by the Reserve Bank Of India (RBI) called Portfolio Investment Scheme (PIS). Like a normal Indian investor the NRI also needs to have a Trading Account and Demat Account. But for banking activities he has to have a separate PIS account.

Documents Required for opening a trading/demat account in India:

A.)Valid Passport

B.)Valid Pan card

C.) Indian and overseas address proof

D) RBI approval from designated bank

What is a Designated Bank (DB)?

Reserve Bank has authorized a few Banks to conduct the business under Portfolio Investment Scheme (PIS) on behalf of NRIs.. NRIs will have to route their applications through any of the designated authorized dealer Banks who have authorization from Reserve Bank.NRI/PIOs can subscribe to IPOs in India. The client need not take any permission; the issuing company obtains general permission from GoI/RBI. Therefore, individual NRI need not obtain any permission.

Transactions that can be done in an NRI Trading Account / Demat Account if PIS Bank account details are not submitted?

NRIs / PIOs can do the following transactions if a Trading account is opened without PIS permission:
a) Investment in Mutual Fund in NRE and NRO status
b) Investment in Initial Public Offer in NRE and NRO status
c) Investment in Futures and Options in NRO status
d) Dematerialization and sales of Physical Share Certificates
e) Exercising and Selling of Shares acquired in Promoters Quota or ESOP allotment
To do the above transaction all the client has to do the provide the SB NRI Bank details along with the proof overseas address, PAN and Passport copy.
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nts Required for opening a trading/demat account in India:


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