Opening a demat account
Opening a Demat account for an individual involves the following:
- The person who wants to open a demat account should approach a DP and duly fill up demat account-opening form.
- The account opening form must be supported with the following documents:
- Any approved document to serve as proof of identity (POI)
- Any approved document to serve as proof of address (POA)
- Original PAN card at the time of opening of account
- The list of approved DPs in India is listed in the websites of the NSDL and CDSL. Investors can verify to choose a DP.
- After submission of account-opening booklet, he/she will receive an account number and a DP ID number for the account.
- For all future correspondences, the account number and the DP ID number have to be quoted.
- The demat account can be operated either by the holder (DP) / owner (client) of the demat account. If the account has to be operated by the DP, the client has to give the necessary instructions / power of attorney for account operation.
To start investing in the Indian stock Markets, NRIs have to:
- Open a new bank account with a bank, which is approved by The RBI (Reserve Bank of India) for the said purpose.
- Apply for a general approval for investment in Indian stock market through the chosen bank (PIS approval).
- Open a demat account with a Depository Participant (DP) to hold the shares traded.
- Register with a broker to carry out buy/sell orders on the stock exchange.
Demat account charges
Charges usually levied on a demat account include:
Account opening fee: Few DPs charge account opening fee and a few don't. Private banks like UTI bank, ICICI bank, and HDFC bank don't charge account opening fees.
Annual maintenance fee: Also known as the folio maintenance charges, this fee is levied in advance.
Custodian fee: Charged monthly, the amount depends on the number of securities (International Securities Identification Numbers – ISIN) held in the account. ISIN on which the companies have paid one-time custody charges to the depository will not attract custody fee.
Transaction fee: Crediting/debiting securities to and from the account on a monthly basis attracts a transaction fee. The fee charged varies among DPs; few DPs charge only for debiting the securities while others charge for both buying and selling.
Apart from the above listed charges, DPs charge service charges too. Please note that all the charges vary from DP to DP and can be amended without any prior notification.
NRI and Demat account
Yes, it is mandatory for non resident Indians – NRIs to have a PAN CARD if they are interested in investing in the Indian stock market. If they have a PAN number they can trade in shares as well as mutual funds. In fact they can carry out any kind of financial transaction in India. NRIs have to quote Pan Number if they wish to:
- Open up a demat account
- Invest in mutual funds of India or invest in shares in excess of ₹50,000 each.
- Open up an online trading account.
- Want to exercise or convert the ESOP into shares or put in Demat Account.
- Want to make any investment in India.
NRI PAN number
Lately, NRIs are allowed to apply for a PAN number directly. They are required to provide a copy of the passport as proof of identity and address.
- Fill Form 49A and submit the same to the nearest UTI, UTIISL or NSDL centre.
- Support the application with relevant documents asked for.
- The application can be submitted by the applicant or through a local representative in India or through an Indian broker/agent, who will, on the applicant's behalf submit the form to the relevant centre.
- Online applications can be submitted too. In fact tatkal facilities are also available.
The details and list of documents required with the filled up form will be mentioned in the PAN application form itself, for quick reference. You can refer the list below:
- Full name of applicant
- Father's name
- Date of Birth
- Residential and Office address
- Main source of applicant's income
- Designation and code of your Assessing Officer
- Passport size color photograph (size: 3.5 x 2.5 cm)
- Proof of Identity
- Proof of Address
For proof of address and proof of identity, the following may be submitted:
- Bank statement as proof of address if the address is different from that provided in the passport.
- Credit card
- Driving license
- Depository account
- Property tax assessment order
- Ration card
- School leaving certificate
- Matriculation certificate
- Degree from a recognized university
- Voter's ID card
- If the applicant does not have any of the above mentioned documents, he/she can produce a signed proof of identity and proof of address signed by the local MP, MLA, Municipal Councilor or a Gazetted Officer.
- The proof of identity and address has to be attested by the Indian Mission of the applicant's country.
- NRIs can have only one PAN.
- In case of loss, a duplicate copy may be obtained.
Can the DEMAT account be attached to both NRE and NRO accounts ?
To invest in India, an NRI has to open a bank account. The two main rupee accounts are:
NRE: Non-Resident External account is an external saving bank account opened for Non resident Indians. As it is an external account, any money remaining in NRE account can be transferred outside the country, i.e. the money in the NRE account is completely repatriable. This money can be converted into any foreign currency at the request of the account holder and can be remitted outside the country too. Principal and interest earned are repatriable.
NRO: Non-Resident Ordinary account is an ordinary saving bank account opened for Non Resident Indians. As it is an ordinary account, money in NRO account cannot be transferred outside the country i.e. the money in NRO account is not repatriable. This money cannot be converted into foreign currency and cannot be remitted outside the country too. Principal cannot be repatriated whereas interest earned can be.
Demat account is independent of NRE and NRO account but NRIs have to quote the NRE or NRO account number in their demat application form. The demat account can be attached to either the NRE or the NRO account. If the investor wants to repatriate the money from time to time, it is advisable for him/her to attach the demat account to NRE account.
Are there any restrictions to participate in BSE or NSE ?
NRIs can participate both in NSE and BSE trading. There are no restrictions; once an NRI demat account is opened as per the set of rules and regulations.
Can a trading account be opened for margin trading ?
Margin trading refers to money borrowed from the broker to purchase stocks. In simple words it means, a loan from the broker to buy more stocks. To facilitate margin trading, the investor has to pay up an initial margin. Initial margin is the minimum amount to be deposited with the broker before the actual purchase. This will be either 50% or so depending on the broker and on the value of the stock purchased. Initial margin can be only in the form of existing clear credit in the customers account. Investors should also maintain a minimum amount of money/position in their account called maintenance margin.
If the investor is interested in margin trading, he/she should follow the below mentioned steps:
- Open a margin account with the broker.
- Maintain a minimum margin in his/her trading account.
- The minimum amount varies from broker to broker based on the rules and regulations of the company
- For few stocks, the investor has to pump in a part of the total value of the transaction. This amount varies according to the stock invested in.
- The investor must square up the position before the end of the day.
- Positions entered into on margin trading cannot be carried over for the next day as in the ordinary market.
- Margin accounts can be very risky and might not be suitable for everyone. Investors may lose money in the process.
- As the stocks invested in are in the possession of the broker, the broker can sell them without consulting the investor to recover the loan given by him.
Can an NRI participate in derivative trading ?
Yes, an NRI can participate in derivatives trading through the NRO account he/she holds. NRO account refers to the non-repatriable money held in the Indian account of the NRI. To participate in derivative trading the following steps have to be followed:
- Duly filled in application for Custodial Participant (CP) Code through SHCIL.
- Opening of F&O trading account.
- Opening of a bank A/c in NRO status.
Documents required for opening a derivatives account
- Signed KYC forms
- Copy of Passport and VISA
- Copy of Overseas Address Proof
- Copy of PAN
Who is offering the DEMAT/brokerage services ?
Traditional brokerage houses: Prabhudas Lilladher and Motilal Oswal
Banks: ICICI direct, HDFC Securities, UTI securities, etc
Other financial institutions: India bulls and IL&FS investsmart, India infoline, Religare, Sharekhan, etc.
Useful websites for Indian Demat rules and regulations