Who Can Open a Demat Account?
Who can open a Demat account? It becomes challenging for newcomers to learn about the basics of the Demat account and for them to open a Demat account. For example, investing in the stock market requires some basic things like a bank account, a Demat account, and a trading account.
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Demat Account Eligibility Criteria
Eligible investors can open a Demat account to trade stocks, mutual funds, and other securities. As individuals can open a Demat Account have to fulfill the following criteria-
Resident individual
The question that usually comes to mind is, “Who can open a Demat account in India?” An Indian resident can apply to open a Demat Account with ease. To fulfill the conditions of being an Indian resident, one must be living in India in the previous year for at least 182 days. They can also stay in India for 60 days in the said year and at least 365 days in the last four years before the year in question.
Hindu Undivided Family (HUF)
Hindu Undivided Family or HUF is a system that has pooled assets and securities that belong to the family or family ancestry. This HUF acts as a single unit for all tax purposes. You can use it to open a Demat account for trading purposes. The Demat account is opened using the signatory authority of the head of the family. They will have a different PAN and fill out taxes accordingly.
Domestic Corporate
Domestic companies can also open a Demat account in their name. A domestic corporation is an Indian company under Section 2 (22A) of the Income Tax Act 1961 and is taxed according to the act. These companies are qualified to apply for Demat accounts for trading purposes using any stockbroker or depository participant.
Non-resident Indians (NRIs)
The question that comes to mind is, “Can we open a Demat account outside India.” The Reserve Bank of India (RBI) guidelines mandate an NRI to open a trading account with either a Non-Resident Ordinary (NRO) or a Non-Resident External (NRE) account to make their investments.
NRO and NRE accounts make it easy for NRIs to manage their income in INR denomination in one place. Both NRE and NRO accounts help NRIs manage their finances from India and abroad and give them the provision to open a linked Demat account. NRIs can easily invest and monitor their finances while sitting in a different country through these accounts.
The only difference between an NRO and an NRE account is that NRO accounts are meant to hold income from India and abroad, whereas NRE accounts can keep earnings only from abroad. NRO accounts are levied on taxes, whereas NRE is not.
If a person has a Demat account before going abroad, they can easily convert it into the NRO category. They can also open a new account. Previously held shares will get transferred to the new NRO account in both cases.
Clearing Member (Pool Account)
A clearing member or pool account is a stockbroker’s account. You can use it to store the securities of the broker’s clients in one place. Brokers can also receive securities in this account from the central depositories.
What are the Requirements for a Demat Account?
So there is a need to understand the criteria to open a Demat account, and even if individuals fulfill the requirements, they will have a different PAN and fill out taxes accordingly. The minimum eligibility criteria for opening a Demat account are as follows:
Age
There is no age bar to open a Demat account. A parent or guardian can open an account using a minor’s name. The minor can assess the account until the little is an adult. After the minor turns 18, the depository participant (DP) will update the account with KYC documents.
PAN and KYC Details
A PAN card is a necessary document required to open a Demat Account. KYC details are essential as all of these processes are taking place online. You can provide these details through the Aadhaar card.
Trading Account
Demat and trading accounts go hand in hand, and so one needs a functional trading Account to trade the securities stored in the Demat Account. Most trading apps provide their users with Demat as well as trading accounts.
Bank Account Proof
There has to be a bank account and a Demat account to quickly transfer funds while buying and selling them. You can provide your broker with a canceled cheque, bank passbook, or the latest 6-month bank statement to submit a bank account proof.
Income Proof
For documentation, you must be able to provide income proof in the form of either of the following – the latest 6-month bank statement, 3-month salary slip, or ITR statement.
Address Proof
To submit address proof, you can provide – PAN card/ Aadhaar Card/ Driving License/ Passport/ Voter ID Card.
How Does a Demat Account Work?
A Demat account is used to store securities. There are a lot of institutions and brokers that work behind the efficient working of Demat accounts. Some of the things that go behind the working of these accounts are:
Depository
India’s two central depositories are the CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited). These play the primary role in storing securities and assets.
Unique ID
All Demat accounts have a unique ID for identification. These IDs are used for transactions and for identifying different investors holding a Demat account.
Depository Participants (DP)
A Depository Participant (DP) enables you to create a Demat account once you are eligible, with the criteria set by the depository. It is a mediator between a depository and the investors. These DP are commonly called stockbrokers.
Portfolio Holding
It is an account containing all account transactions’ details. Once a transaction occurs, these portfolio holdings are automatically updated.
A Demat account is provided by a depository and transferred to a DP. Through the DP, an investor can easily apply and open a Demat account and invest quickly and efficiently. I hope you find this information useful to know “Who can open a Demat account in India”.
Frequently Asked Questions (FAQs)
No, opening a Demat account for a minor is not a very tedious task. It can be done at any bank or depository near you and requires some basic documentation related to the guardian and the minor. Looking at the benefits of opening a minor’s Demat account, the task seems to be easy as it provides profits for the long term. These benefits can be used as the minor’s future expenses and prove to secure them for their initial years financially.
There are several benefits of having a Demat Account, including:
- Opening and managing a Demat account is online and hence hassle-free, convenient, and quick for investors.
- Demat accounts are also linked to bank accounts, making funds transfer a quick and easy process.
- You have the ease of freezing your Demat account if you face any problems regarding the security of your account.
- You can keep the securities and shares of your Demat account as collateral and get a secured loan based on these assets.
You can easily change and update your address in a Demat account through an easy procedure. It involves filing an Address Change form and your PAN Card and address proof of your new address. It will also require the completion of a KYC, and your address will automatically be updated in your Demat Account.
Opening a Demat Account is a simple procedure at present. You just need a depository participant and a depository. As an investor, you refer to a depository participant, a bank, or other financial institution. This DP asks for all the documentation and assists you through the procedure of opening a Demat Account. It acts as a mediator between a depository and an investor.
The Depository is responsible for storing and securing your securities in a Dematerialized form. In addition, they regulate and manage the funds deposited in these accounts, future category transfers, and trade. They also manage the DP’s overall functioning.
In order to open a demat account, a broker is required. The process of owning and maintaining securities in electronic form is made easier by the depository participant (DP), who serves as a middleman between you and the depository.