The Indian securities market has constantly provided good returns to investors, given that they base their investments on extensive market research and other effective investment strategies. However, before 1996, stocks were traded using physical share certificates. In 1996, SEBI introduced Demat accounts to replace physical share certificates. Currently, there are over 14.8 crore Demat accounts in India, and they come in various types, such as regular Demat accounts, repatriable Demat accounts, and non-repatriable Demat accounts.
But what does a Demat account mean? And what are the features of various Demat account types?
This article will help you understand everything about Demat accounts, particularly repatriable Demat accounts, which help NRIs invest in Indian securities.
Introduction to Demat accounts and their different types
A Demat or Dematerialisation account is a type of investment account that allows investors to hold their shares digitally and in electronic format. When investors buy shares of a company from the stock exchanges, the shares are credited to the Demat account. On the other hand, in the case of a share sale, the shares already stored are debited from the Demat account. The account is similar to a bank account but for shares.
A Demat account is an electronic alternative for holding various types of investment instruments such as shares, bonds, ETFs, government securities, mutual funds, etc. Almost all stockbrokers and financial institutions offer Demat accounts to their customers to buy or sell securities without having to hold physical certificates.
Three types of Demat accounts fulfil three different purposes for three different types of investors:
- Regular Demat Account
- Repatriable Demat Account
- Non-Repatriable Demat Account
What are regular Demat accounts?
Regular Demat accounts are digital accounts designed for traders and investors who are Indian citizens and reside in India. These accounts allow Indian citizens to buy and sell securities, such as stocks, without having to hold physical share certificates. Depositories such as National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) facilitate Demat accounts.
NSDL and CDSL provide regular Demat account services through intermediaries/stock brokers/depository participants, etc. For example, numerous stock broking platforms allow the opening of a Demat account on their platforms backed by NSDL and CDSL. These platforms charge a fee for providing regular Demat account services based on the type of services availed and the volume of the transactions.
What is a repatriable Demat account?
Repatriable Demat account meaning refers to a type of Demat account specially designed for non-resident Indians (NRIs) who reside outside India but want to trade or invest in Indian securities. However, it is important that a person residing outside India must fulfil the FEMA and Income Tax Act guidelines to be defined as an NRI.
This Demat account type (repatriable) also allows NRIs to transfer funds to and from a foreign country. However, NRIs must link a Non-Resident External (NRE) bank account to their repatriable Demat account to transfer funds. On the other hand, NRIs can also link a Non-Resident Ordinary (NRO) account to their Demat accounts, but this comes with a repatriable limit of $1 million per year for principal and interest.
What is a non-repatriable Demat account?
Similar to a repatriable Demat account, a non-repatriable Demat account is also designed to let NRIs buy and sell securities in the Indian capital markets. However, non-repatriable Demat accounts restrict NRIs from transferring funds to a foreign country. The investments made by NRIs in India using the account can not be converted to foreign currency. Furthermore, NRIs are required to link an NRO account to their non-repatriable Demat accounts.
As foreign fund transfers are disallowed, NRIs cannot link an NRE account to this type of Demat account. This means they cannot transfer the proceeds and gains from the sale of their securities in India. The most they can do through a non-repatriable Demat account is transfer principal and interest up to $1 million after TDS deduction. Hence, NRIs generally open a non-repatriable Demat account to manage their income earned through investments in India rather than actively investing in Indian securities for monetary gains.
Key features of an NRI repatriable Demat account
An NRI repatriable Demat account allows NRIs to transfer funds overseas, generally to a bank account in their country of residence. It helps NRIs realise the gains from Indian investments, which they can use in their resident country. NRIs can also use this Demat account type (repatriable) to invest in a range of Indian securities such as stocks, bonds, mutual funds, etc.
An NRI repatriable Demat account also offers tax benefits to NRIs as the interest earned in NRE accounts is tax-free in India. NRIs can also nominate a person to receive the funds and securities in the case of the death of the account holder. Furthermore, a repatriable Demat account includes a facility to help NRIs convert their physical share certificates into Dematerialised shares.
Conclusion
Demats accounts have become compulsory if individuals want to trade or invest in the Indian securities market. However, for NRIs to invest, they are required to open a non-repatriable or repatriable Demat account. Between the two, repatriable Demat accounts offer more features and benefits, the best being the facility to transfer funds overseas.
