The AtoZ FinApp

Broadly, there are 3 types of demat accounts.

• Regular Demat account: This is the regular demat account opened by Indian citizens who are resident in India to trade in the capital markets or to apply for IPOs.
• Repatriable Demat account: This account is for Non-Resident Indians (NRIs) and funds from sale of shares can be repatriated abroad through associated NRE bank account.
• Non-Repatriable Demat account: This demat account is meant for NRIs, but funds cannot be repatriated abroad. This demat account needs associated NRO bank account.

In regular demat accounts, there is further classification of Basic Services Demat Account (BSDA) for small investors up to a value of Rs.4 lakh. The AMC charges are much lower in the case of BSDA account. It has been fixed at Nil (up to Rs.50,000 demat value), Rs.100 (up to Rs.2 lakh demat value) and Rs.300 above that. You can only have 1 BSDA account.

There is no specification for account opening charges by SEBI and the DP can decide based on their discretion. Normally, account charges are nominal and vary between Rs.300 and Rs.600 and it is a one-time upfront charge. This is different from the annual maintenance charges (AMC) which is levied on the demat account by the DP on an annual basis. There is 18% GST that is levied on these charges, so the actual cost will be higher.

However, in the case of Nuuu, there will be no demat account opening charges. Account opening will be entirely free and no hidden charges will be levied. In addition, Nuuu will also waive the first year AMC for the clients subject to their meeting certain basic criteria. Other charges will be applicable like for demat debits, demat of shares, conversion of mutual fund units etc.

To be eligible to open a regular demat account with a DP, the person must be a citizen of India and must also be a resident Indian. The definition of Resident Indian is the same as the definition contained in the Income Tax Act for RIs and NRIs. In addition, the person opening a demat account must be above 18 years of age. In other words, only a person capable of legally entering into a contract under the Indian Contracts Act will be eligible to open a regular demat account in India.

The aspect on eligible to enter into contracts must be understood properly. Under the Indian Contracts Act, certain persons are barred from entering into contracts. These include persons with unsound mind, person declared insolvent, alien enemies etc. Contracts entered into in a state of intoxication are also not valid. All such persons not eligible for contracts, are not eligible to open a demat account.

The following are some of the key documents required for demat account opening.

• Identity Proof. This must be any card issued by a government body that has your name, photograph and signature clearly visible.
• PAN Card is mandatory, even if you have provided Identity Proof through other documents.
• Address proof. This can include passport, driving license, Voter ID, Aadhar Card, Bank statement for last 3 months, or such other documents approved from time to time.
• Photograph. Passport size photograph has to be also submitted with the demat application form in colour.
• Bank Proof. This has to be given separately and can include passbook copy, signed & stamped bank statement for last 6 months or cancelled cheque. Most DPs insist on a cancelled cheque with the name of the account holder embossed on the cheque leaf.
• A confirmatory signature on a separate paper, if the signature on the demat account application does not match with the proof of identity document submitted
• Income proof in the form of 6-month bank statement, net worth certificate, 3-month salary slip etc. This is not mandatory for equity trading but required for F&O trading.

An NRI is allowed to open a demat account and trading account in India, the only difference being that the conditions are a little more elaborate and even the compliance is stringent. The first choice that the NRI has to make is between a repatriable demat account and a non-repatriable demat account. NRIs are allowed to open a demat account either online or offline depending on their choice.

Here is how NRIs can open a demat account

• First step is to download and fill the demat account opening form
• The next step is to attach all the required documents, which should be self-attested and notarized by the Indian embassy or other competent authority
• Form must be submitted to the participant chosen by the individual

Documents required to open an NRI Demat Account?

• Duly filled account opening form signed by the account holders
• Portfolio Investment Scheme (PIS) letter of approval issued directly by RBI to the NRI
• Passport-sized colour photograph of the account holder with signature across the photo
• Scanned copy of PAN card
• Overseas address proof of the NRI
• Copy of Visa and passport
• A cancelled cheque of NRO/NRE bank account linked to demat account
• Photograph and signature of the nominee authorizing the use of the nomination facility of the demat account
• All the above documents should be attested by the Notary, Banker or Indian Embassy of the country where the NRI resides

There is no restriction on opening multiple demat accounts and there is no limit on the number of demat accounts. However, there are some conditions that need to be followed.

• All securities purchased through multiple Demat accounts must be necessarily attributed to one unique PAN number. It is illegal for a person to have multiple PAN numbers.
• You should link your PAN number to every demat account you open. You are free to link multiple demat accounts to a single bank or single trading account.
• You are not permitted to open two demat accounts with the same depository participant. DPs are the link between investors and the principal depositories like NSDL and CDSL. You can have multiple demat accounts with different DPs.
• It is possible to have two demat accounts with the same DP if you use a different name combination. You can have one individual demat account and one joint demat account with the same DP.

Advantages of opening multiple demat accounts

• Multiple Demat can be used by investors to segregate between short-term and long-term investments for ease of administration
• With multiple accounts, investors gain access to different features offered by different brokerage firms

However, the thumb rule is not to have too many demat accounts as it entails a cost and administering multiple demat accounts can be tough.

There are two ways to do a systematic investment plan (SIP). You can do a SIP on direct equities or you can do SIPs in mutual funds. SIPs are regular investment of small amounts (normally monthly) in a stock or in a particular mutual fund. It gives the benefit of rupee cost averaging.

In the case of SIP on equity, demat account is mandatory. SEBI regulations stipulate that any purchase or sale of equities can only be routed through a demat account and trading in equity shares is not permitted without a demat account. Hence, if you are doing SIP on equities, demat account is absolutely mandatory.

In the case of mutual funds, you can choose to hold the mutual fund units either in statement form or in demat form. In case you want to hold mutual fund units in statement form, then demat account is not required. However, demat account is needed if you choose to buy mutual fund units through your trading account.

It is possible to hold mutual funds in statement form and also in demat form. You are allowed to use your existing demat account for holding and converting your mutual fund units in dematerialised form. Let us first look at how to directly subscribe to mutual funds in demat form?

Currently, most of the AMCs offer units of various schemes (Direct and Regular option) in demat form also during the NFO and later too. All you need to do is to mention details of your existing demat account (Client ID and DP ID) in the subscription form. Rest of the subscription process remains as it is. Units are directly credited to your demat account. Let us also look at how to convert existing mutual fund units to demat form?

Here is the process to convert your mutual fund units into demat form

• Obtain Conversion Request Form (CRF) from your DP
• Fill-up the CRF and sign it
• Submit CRF along-with the MF Statement of Account to your DP
• After verification, DP sends CRF to Mutual Fund AMC / RTA
• AMC / RTA will verify and confirm the conversion request executed by DP
• Mutual fund units will be credited in your demat account.

There is no money held in a demat account, unlike a bank account, hence there is no question of withdrawing money from the demat account. In case you want to monetize your holdings in the demat account, you need to sell the shares held in the demat account through your trading account. You cannot direct sell shares from the demat account.

Cash benefits like dividends are directly credited to your bank account based on your demat holdings as on the record date.

There is no minimum amount required for opening a demat account. You can open a demat account and keep zero balance of shares, although you still need to pay for the annual maintenance charges for the demat account.

You cannot apply for an IPO unless you have a demat account. SEBI has scrapped the system of allotment of shares in physical form, so having a demat account is mandatory for applying for an IPO. All IPO allotments will only be directly credited to your demat account.

While filling the IPO application form, it is essential to properly mention the DP-ID and the Client ID in the form with signature matching with the master record in the DP account. If these basic criteria are not met, then the application can be rejected.

Do you need a trading account for IPO application? You don’t. However, you still need a trading account if you want to sell the shares allotted to you in the IPO.