Demat accounts have revolutionised trading in India. Gone are the days when investors carried physical share certificates. Ever since Demat accounts have arrived in India, investors can skip the hassle of carrying physical securities. One can apply for a new Demat or dematerialisation account in India and hold electronic securities. Before you decide to open a Demat account, it is essential to consider the SEBI guidelines.
Decoding the Uses of Demat Accounts for Investors
Before discussing the SEBI guidelines, it is essential to understand what is a dematerialisation account. A Dematerialisation account is used to hold electronic securities for a given period. Let us say you want to invest in a company’s Initial Public Offering (IPO). Without a Demat account, you can carry out an IPO investment. But to store the allotted shares, you need a Demat account. The shares are transferred to the Demat accounts of respective investors, thus eliminating the need for any paper certificate. Similarly, one can hold mutual fund units, bonds, and other securities within a Demat account.
Investors must link their Demat account with a trading account. A trading account in India allows you to buy/sell securities on stock exchanges. When securities are purchased through trading accounts, they are dematerialised through Demat accounts. On the other hand, assets are debited from the respective Demat account when you decide to sell them. Since Demat accounts show your holdings and asset allocation, they are also used for portfolio monitoring. You can use a trading platform to access your Demat and trading accounts, irrespective of location. You only need a smartphone, tablet, laptop, or any other device to access your Demat account and view holdings.
SEBI Guidelines to Open a New Dematerialisation Account
SEBI gives the authority to DPs (Depository Participants) to distribute new Demat accounts. A DP will be registered with either NSDL or CDSL, the authorised depositories for electronic securities in India. Investors also choose brokers for diverse investment services. It is crucial to ensure that the broker is also registered as a DP to offer Demat account services. After selecting a broker or DP, you can apply for a new Demat account online or offline. Here are SEBI guidelines that highlight the eligibility to open a Demat account (Regular or Basic Services Demat Account) in India:
- The Demat account applicant must be above 18 years of age
- The individual must be an Indian citizen
- The Demat account applicant must have a PAN card
Other types are also available for investors besides Regular and Basic Services Demat accounts. Here are SEBI guidelines for other types of Demat accounts in India:
- Minors (below 18 years of age) can also apply for a new Demat account in India. However, the parent or legal guardian will manage the minor Demat account. A minor will get complete ownership of the Demat account after turning 18.
- NRIs (Non-Resident Indians) can also invest in the Indian market by opening a Demat account. NRIs can opt for repatriable or non-repatriable Demat accounts in India.
- A repatriable Demat account allows the NRI to transfer funds abroad when needed. On the other hand, there are restrictions on transferring funds abroad for non-repatriable Demat accounts.
- Two or three individuals can apply for a joint Demat account in India. However, more than three individuals cannot apply for a joint Demat account in India.
SEBI Guidelines for KYC Verification
SEBI has made it mandatory for DPs and brokers to collect customer KYC (Know Your Customer) details. When you apply for a new Demat account, the KYC verification becomes mandatory. The KYC verification step usually comes after you fill out the Demat account application. As per KYC norms, you must submit the following documents to open a new Demat account:
- PAN card (mandatory)
- Address proof (Aadhaar card, utility bill, voter’s ID, passport, etc.)
- Bank account details
- Income proof (if applicable)
- Passport-sized photographs
- Demat account application
After submitting these documents, applicants must wait a while. The broker or DP will verify these documents before offering Demat account credentials. As per SEBI guidelines, the broker or DP might require you for an in-person verification. Some brokers and DPs might conduct the verification process over a video call, especially ones doing e-KYC. SEBI guidelines also state that a Demat account request will be cancelled when all KYC documents aren’t provided.
SEBI Guidelines for Closing a Dematerialisation Account
Investors are also allowed to close existing Demat accounts in India. You can close a few Demat accounts to save on Annual Maintenance Charges (AMC) if you have multiple Demat accounts. You must ask for an account closing form from the broker or DP. Mention the Demat account number, reason for closure, and other details in the form. If there are any securities in the Demat account, they are transferred to a separate account. It might take seven to ten days for the broker or DP to close your Demat account.
In a Nutshell
You must follow some SEBI guidelines to open a new Demat account in India. For instance, KYC verification is compulsory to open a new Demat account. SEBI also has guidelines for closing existing Demat accounts in India. New investors must take a look at the guidelines before starting their trading journey. Learn more about SEBI rules and regulations now!
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