In recent years, the Indian stock market has experienced notable growth and transformation, becoming a prominent player in the global financial landscape. This evolution is attributed to advancements in technology, regulatory changes, and increased participation from investors. From a market capitalisation of $1.5 trillion in 2014, representing BSE-listed firms, it has now surged to over $4 trillion.
This impressive growth has not only propelled the Indian stock market forward but has also led to it surpassing Hong Kong’s market capitalisation last year, positioning it as the fifth-largest equity market globally, with a global share exceeding 3.5%.In order to engage in the Indian stock market, both resident Indians and Non-Resident Indians (NRIs) are required to open a demat account and trading account with registered depository participants.
Alternatively, investors can opt for participation in stock investing through mutual funds without the necessity of opening a demat account. However, those interested in direct trading are mandated to open a demat account.
What is a demat account?
A dematerialised (demat) account serves as a secure digital repository for an investor’s financial securities, housing them in electronic form. This arrangement simplifies the storage and administration of financial assets, offering investors convenience and ease of access.
Owning a demat account is a prerequisite for participating in the Indian stock market. These accounts are provided by depository agencies, primarily CDSL and NSDL, both of which are regulated by the Securities and Exchange Board of India (SEBI).
How many demat accounts can you hold?
If you already have a demat account and are contemplating opening another one with a different depository participant, you are free to proceed. The process for opening a second demat account remains identical to the first; you must submit the required documents.
There is no limitation on the number of demat accounts you can hold concurrently. You are permitted to maintain multiple demat accounts simultaneously, each with its own distinct set of investments and transactions.
Depository’s role
A depository is an institution that holds securities (such as shares, debentures, bonds, government securities, mutual fund units, etc.) of investors in electronic form upon their request through a registered depository participant. It also provides services related to securities transactions.
Depositories function akin to banks, holding securities in an account similar to how banks hold funds in an account. They also facilitate the transfer of securities between accounts upon the demat account holder’s instruction, similar to how banks transfer funds between accounts at the account holder’s request.
Moreover, they enable the transfer of ownership without physically handling securities, similar to how banks facilitate transfers without physically handling money.
Who is called NRI?
An NRI (Non-Resident Indian), as per the Foreign Exchange Management Act (FEMA), 1999, is defined based on the permanent residence status of an overseas Indian. This includes Indian citizens living abroad or Persons of Indian Origin (PIOs) who are foreign citizens permanently settled outside India for various reasons such as employment, profession, business, or having established a permanent home and family ties abroad.
In contrast, the definition of a ‘Non-Resident’ under the Income Tax Act, 1961 (IT Act) depends on the number of days an individual stays in India during a specific financial year. Typically, an individual is considered a Non-Resident under the IT Act if their stay in India does not exceed 181 days in a financial year, which begins on April 1st and ends on March 31st.
Can an NRI open a demat account in India?
Yes, Non-Resident Indians (NRIs) are allowed to open demat accounts in India. The Reserve Bank of India (RBI) permits NRIs to invest in the Indian stock market through the Portfolio Investment Scheme (PIS) route.
Portfolio Investment Scheme (PIS): It serves as a mechanism for NRIs to actively participate in and invest in shares of Indian companies and bonds, whether on a repatriation or non-repatriation basis. This is facilitated through a registered stock broker operating on a recognised stock exchange.
For this purpose, NRIs are required to open both NRE accounts (on a repatriation basis) and NRO accounts (on a non-repatriation basis) under the PIS with the same designated bank. It’s important to note that NRIs must maintain a separate bank account solely dedicated to PIS activities, with all transactions related to shares purchased or sold channelled through this account. Any other transactions unrelated to share trading are strictly prohibited in this account.
