SEBI Guidelines for Demat Account

Imagine being witness to a game that has no predefined rules. Anyone can tweak the set of so-called rules and play the game according to their convenience. That would be chaos, right? This analogy is one reason why we need to understand the SEBI guidelines for Demat Account.

Before we jump to the topic of learning the SEBI guidelines for Demat Account, let’s briefly understand what a Demat Account is.

A Dematerialization account in the layman language is known as Demat Account. This account is what facilitates trade in the stock market. It holds the financial assets and securities in electronic form.

Owning a Demat account to trade was made mandatory by the implementation of the Depository Act, 1996. Further, the two depository organizations of India maintain this facility.

NSDL (National Securities Depository Limited) & CDSL (Central Depository Servies Limited) are the depositories that have all the financial securities safe in the electronic format.

When you open a demat account, either online or through an offline form, the SEBI guidelines for demat account are mentioned in the form (check the fine print). In this quick review, let’s talk about the very same SEBI guidelines.

Demat Account Rules

Clarity of the basics is necessary to make sure you don’t make decisions based on half-knowledge. After getting a clear idea of the importance of Demat account, you have the base of understanding the SEBI Guidelines for Demat Account.

Here are the specific SEBI guidelines for Demat Account:

1. Nomination NOT required for Demat Account

From 1st October 2021, there is no need for you to provide or assign a nomination for your demat account. If you would like to assign a nominee, you still can but it is not mandatory anymore.

There is a specific format for you to assign a nominee and at the same time, a specific format for you to declare that you do not want to.

At the end of the day, you will have to either provide a nominee (maximum of 3) or a declaration. Otherwise, there is a possibility that your demat account may see a freeze.

Demat account holders just need to sign the form or affix the thumb impression. If that does not work, then the signatures of the witness will be required to keep the nomination document legitimate.

2. SEBI Guidelines for Demat Account Opening

Some documents have been necessitated by SEBI to make the process uniform and ensure the submission of correct information. The majority of these are government-issued. The documents required for Demat Account are: 

• Duly Filled Application Form
• Address Proof
• PAN Card
• Bank Statement (to link Bank Account)

After submitting these documents to a broker of your choice, a Demat account would get operational. At the same time, you need to make sure that the Aadhar Card is linked with your PAN card.

Then what follows is one of the most crucial aspects i.e. trading rules. For instance, you need to be aware of the intraday trading rules in order to perform that format of trading.

And if you ignore or choose not to follow these rules, well, you will be left to blame yourself for your potential implications (read losses).

3. SEBI Guidelines for Closure of Demat Account

In case you wish to call it quits from trading in the Stock Market, you would want to close the Demat account down. 

The Demat account rules for closing are:

• Fill a form to close the Demat account.
• Necessary information is – DP Id & Client Id, current information should match the ones in the record.
• Mention the reason to close your account.
• If there is any balance in the Demat account, it’ll get transferred to the account details provided.

In 7-10 business days, the account would be inoperational.

Note – In case of any dues, clear them before making the Demat account inoperational.

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4. SEBI Guidelines for BSDA Demat Account

BSDA stands for Basic Service Demat Account. One mandatory prerequisite for holding a BSDA is – you can not keep more than ₹2,00,000.

BSDA Demat account rules are as follows:

1. Only one BSDA Demat account, across all depositories, is permitted.
2. AMC structure for BSDA Demat Account is dependent on account holding –
   1. Less than ₹50,000: AMC is Nil.
   2. ₹50,000 – ₹2,00,000: AMC is up to ₹100.
   3. Above ₹2,00,000: Normal AMC is levied.

Exceeding this amount even for once would lead to the appropriate charges.

1. Quarterly Transaction Statement is sent to the BO even if the trader carries out only one transaction.
2. A statement of annual holding is sent to the BO in physical or electronic form, as opted by him/ her.
3. Electronic statements are to be free of cost & in the case of physical statements, at least two should be for free. For physical statements, more than the Stockbroker’s pre-decided number, not more than ₹25 per statement.
4. The following points were added to the list to reduce the compliance charges for the DPs:
   1. Zero Balance & Nil Transaction Account – One physical statement of holding is necessary to be sent to BOs, annually.
   2. Accounts that become Zero Balance during the year – the broker has to send one account holding statement annually, but mailing the transaction report is not mandatory.
   3. Credit but No Transaction Account – Sending one statement of holding is mandatory.

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5. Minor Demat Account Rules

Since owning shares of a company, you need to have a Demat account. Before knowing How to open minor Demat Account? it is better to know some rules that have to be abiding by:

1. Only the natural guardians (parents) or court-appointed guardians can open an account in their name.
2. The account seizes to operate as soon as the minor turns 18 years old. Now, open a new account & the previous holdings get transferred into this account.
3. The old account can be continued only after signing a new agreement between the minor and the Depository Participant.
4. The form is the same for a Minor Demat account, but for verification, two KYC forms are filled – one of the Minor (signed by the guardian) the other of the guardian.
5. The documents remain the same. The guardian fulfils the documentation & submitting the proof of Date of Birth of the minor is compulsory.
6. No trading account can get linked to the Minor Demat account.
7. No minor can be a joint holder.
8. Shares in a Minor Demat account are typically gifts.

Once you are aware of the rules, know the Documents Required For Minor Demat Account and you can open a minor demat account with your favourite stockbroker or can choose any of the following:-

• Angel Broking Minor Demat Account
• Minor Demat Account Upstox
• Minor Demat Account Zerodha
• ICICI Demat Account for Minors
• HDFC Demat Account for Minors
• Motilal Oswal Minor Demat Account
• Sharekhan Minor Demat Account
• IIFL Minor Demat Account
• 5paisa Minor Demat Account

6. SEBI Guidelines for NRI Demat Account

Yes, you read that right. Demat account holders can be NRIs too. But then it isn’t easy for them to be account holders at Demat accounts in India. They have to stick to the Demat account rules for NRI.

These rules are as follows:

1. NRIs can’t trade in commodities or currency segments. They can trade in PSU bonds, ETFs, Government Securities, Mutual Funds, and Cash Delivery.
2. NRIs are not permitted to own more than 5% of a stock listed on the Indian Market indices.
3. Intraday trading & short selling of stocks is not allowed for NRI Demat accounts.
4. The NRI must take care of the documentation process and formalities.
5. If the NRI wishes to hold repatriable & non-repatriable products, they must keep them in separate Demat accounts.
6. For PIS (Portfolio Investment Scheme), they should approach a single authorized dealer only.
7. When NRI returns to India and becomes a resident, they should reach out to the nearest branch of broker they have a Demat account with & intimate them.
8. After the intimation, the transfer of financial securities will get initiated by opening a simple Demat account.

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SEBI Guidelines for Demat Account Charges

The SEBI Guidelines for Demat Account Charges are as below:

1. There are no opening charges applicable to a Demat Account.
2. Maintenance charges are applicable. These charges vary with the broker one trades with and, in the words of the layman, are known as AMC or Annual Maintenance Charges.
3. Further, each selling transaction and every dematerialization & rematerialization of your securities will get charged.
4. When you decide to close your Demat account, it won’t cost you a single penny except for any dues.

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Is Demat Account Necessary for Intraday Trading?

There are many rules for opening, closing, and operating a Demat account. But when it comes to intraday trading, does having a Demat account make sense?

Well, for this it is good to revise the concept of having a Demat account.

A Demat account is where you hold your securities and securities are held when you trade in delivery shares. Right?

So here if you just want to do intraday trading then you do not require a Demat account.

However to smoothen the process and to open the option for both long and short term you can have 2 in 1 i.e. Demat and trading account with the renowned stockbroker.

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Demat Account SEBI Guidelines Summary

A lot of guidelines were announced by SEBI to make the Indian Stock market a safer & uniform place. They are as follows:

1. Charges on the Demat account have been pre-determined to avoid overcharging by stockbrokers.
2. Verification of you as the account holder is mandatory.
3. Linking your PAN Card with the Demat Account is necessary.
4. No minimum account balance is required to maintain the account.
5. The account holder has to pay annual charges and a percentage of your trading as brokerage charges mandatorily.

For more detailed information, read Rules of Share Market

The rules for the Demat account are very much simplified to enhance the user experience and ease the process of trading across the board.

We sincerely hope that your queries regarding the SEBI Guidelines for Demat Account got answered.

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