Demat account

#GS 03 Economy

For Prelims

Demat Account

• Demat accounts or dematerialised accounts is the account that should be started by an investor to buy or sell shares in the stock market.
• Any individual Indian Citizen can start a demat account with a depository participant who is recognized by SEBI.
• In India, instead of the investor taking physical possession of shares and securities, they are held electronically in a dematerialized (Demat) account.
• According to the Economic Survey 2022-23, the number of demat accounts in November 2022 saw a sharp rise of 39% on yearly basis.
• However, the rate of increase of demat accounts have shown on a decline during FY23 relative to FY22, due to the increased volatility in the secondary market.

Types of Demat Accounts

• Based on the residential status of an individual, three kinds of Demat accounts can be created in India.

Regular Demat Account

• Every investor in India is given access to a regular Demat account.
• The investor can open this Demat account with any of the depository participants (DP) they prefer.
• This type of Demat account is different from the others as it does not provide additional features such as foreign fund transfers.

Non-repatriable Demat account

• This sort of Demat account can be opened by non-resident Indians (NRIs) who already have a non-resident ordinary rupee or NRO account.
• These accounts however, does not permit international fund transfer.

Repatriable Demat account

• This type of Demat account is available to NRIs who already have a non-resident rupee or NRE account.
• This account has the ability to conduct international money transfers.

Who is a depository participant

• A depository participant can be a bank or even a stock broker who are issued the licence to open demat accounts on behalf of the investor.
• However, a depository participant is different from a broker since, a broker is a member of the stock exchange who buys and sells shares on his behalf and on behalf of his clients while a DP just gives an account to hold those shares.
• Even though a broker could also hold a licence to provide depository services, it is not necessary for an investor to open a DP account with broker.

 

For Mains

Benefits of Demat Accounts

• Trade in Demat form eliminates the risk of securities being stolen, forged or faked.
• A Demat account can hold not only shares, but also mutual funds, debentures and exchange-traded funds (ETFs).
• A Demat account can store an unlimited number of shares, which allows an investor to trade in large volumes and keep track of the shares they own.

Source “Demat accounts rise, but incremental additions on a decline”

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