#GS 03 Economy
- 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.
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.
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