SEBI Rules and Guidelines for Demat Accounts in India

SEBI Rules and Guidelines for Demat Accounts in India

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Demat accounts are regulated by SEBI, the Securities and Exchange Board of India. A Demat account is an electronic repository required to hold securities, replacing physical certificates. According to SEBI requirements for Demat accounts, you must link your PAN card to your Demat account by KYC rules. SEBI rules for Demat accounts aim to ensure transparency, efficiency, and investor protection. In this article, we will understand all the SEBI rules for Demat accounts that you need to follow for smooth transactions.

SEBI Guidelines for Demat Account Opening

Some documents are required to ensure a uniform process and smooth submission of information. Additionally, these documents are issued by the government. They are as follows:

  1. Application form
  2. Proof of address
  3. PAN card
  4. Bank Statement

As per SEBI rules for a Demat account, these documents must be provided to your broker. Upon verification and authentication of these documents, an account will be opened in your name, typically through a trading app.

Moreover, with the same broker/DP or another, you can open multiple accounts in the same name. However, you've got to comply with all KYC rules. According to SEBI, this includes proof of identity, address, PAN, and more. 

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Table of Content

  1. SEBI Guidelines for Demat Account Opening
  2. SEBI Rules for Demat Account Closing 
  3. SEBI Guidelines for Demat Account Nominee
  4. SEBI Circular for Demat of Shares
  5. SEBI Rules for BSDA Demat Account
  6. SEBI Rules to Open Demat Account for Minor
  7. SEBI Rules for NRI Demat Account
  8. SEBI Guidelines for Demat Account Charges

SEBI Rules for Demat Account Closing 

If you wish to stop trading in the stock market, close your Demat account. The SEBI rules for closing a Demat account are as follows:

  • To close a Demat account, fill out a form.
  • The DP ID and client ID must match the information in the record.
  • Describe why you want to close your account.
  • In case there is a balance in the Demat account, it will be transferred to the provided account information.
  • The account would take 7-10 business days to become inactive.

Note: Clear any dues before closing the Demat account. You must also overlook the SEBI guidelines for demat account opening/closing or trading activity.

SEBI Guidelines for Demat Account Nominee

  • As of 1st October 2021, no nomination is required for your Demat account. If you still want to assign a nominee in demat, you can, but it isn't mandatory.
  • To assign a nominee, there is a specific format; at the same time, there is a specific format to declare that you do not wish to participate. Also, your Demat account may be frozen if you fail to provide a nominee (up to 3) or a declaration.
  • Demat account holders only need to sign the form or register their thumb impressions. If that doesn't work, the witness has to sign the nomination form.

SEBI Circular for Demat of Shares

As per a SEBI circular for the Demat of shares, physical shares cannot be transferred. In this SEBI circular for Demat of shares, if shares have a lock-in period, the RTA will tell the depository when reviewing and confirming the demat request about the lock-in period. After the transfer registration, shares with stringent lock-in periods will be held in demat format for six months.

SEBI Rules for BSDA Demat Account

A BSDA is a Basic Service Demat Account. For a BSDA, you can't keep more than Rs. 2,00,000. Here are the rules for BSDA Demat account:

  • You can only have one BSDA demat account across all depositories.
  • BSDA demat accounts have different AMCs based on account holdings.
  • AMC is 0 for less than Rs 50,000
  • Rs 50,000-Rs 2,00,000: AMC up to Rs 100
  • Above Rs 2,00,000: Normal AMC is applicable.

SEBI Rules to Open Demat Account for Minor

Here are SEBI rules for minors:

  • An account in a minor's name can only be opened by their natural guardians (parents) or court-appointed guardians.
  • Accounts stop operating when minors turn 18. You can start a new account and transfer your previous holdings over.
  • Minors and depository participants need to sign a new agreement to continue the old account.
  • For a minor Demat account, the form is the same, but two KYCs are required: one from the minor (signed by their guardian), and another from their guardian.
  • The documents are the same. During the application process, the guardian has to fill out the paperwork and provide evidence of the minor's date of birth.
  • Minor Demat accounts can't be linked to trading account.
  • A minor can't be a joint holder.

SEBI Rules for NRI Demat Account

NRIs can have Demat accounts too. However, Demat accounts in India aren't easy for them. They have to stick to SEBI rules for demat accounts. Here are the rules:

  • NRIs can't trade commodities or currencies. Among the instruments they can trade are Government securities, ETFs, PSU bonds, mutual funds, and cash.
  • In the Indian Market indices, NRIs are prohibited from owning more than 5% of the stock.
  • For NRI Demat accounts, intraday trading and short selling are not permitted.
  • The NRI must maintain separate Demat accounts for repatriable and non-repairable products.
  • They should only approach one authorised dealer for PIS (Portfolio Investment Scheme).
  • Upon returning to India and becoming a resident, NRIs should contact their nearest broker branch and notify them of their new status.
  • Once the request is received, a simple Demat account will be opened to facilitate the transfer of financial securities.

SEBI Guidelines for Demat Account Charges

The SEBI guidelines for Demat account charges are as follows:

  • SEBI circular on Demat charges states that you don't have to pay anything to open a Demat account.
  • However, you'll have to pay for maintenance. It's called AMC, or annual maintenance charges, and they vary from broker to broker.
  • Moreover, you'll get charged for every sale and every dematerialization & materialisation of your securities according to the SEBI circular on Demat charges.
  • You won't have to pay anything to close your Demat account except any dues.

Conclusion

To regulate Demat accounts in India, SEBI has implemented rules and guidelines. These rules address various aspects, such as opening and closing accounts, nominee assignments, transferring physical shares, BSDA demat accounts, minor accounts, NRI accounts, and charges. Following these SEBI rules for Demat accounts assures investors that their Demat account transactions are transparent, efficient, and protected with the help of a share trading app.

FAQs on SEBI Guidelines on Demat Account

As of May 1, 2023, Indian brokers and clearing members cannot use the funds of their clients for bank guarantees.

There are no such limitations. Demat accounts allow you to hold any amount of securities or shares.

A demat account can be closed when there are no holdings, pending payments, or charges.

There are nominal charges for maintaining a demat account that ranges from Rs. 200 to 800 depending on the DP and the amount of your transactions. In some cases, the annual maintenance fees for a Demat account can be waived.

The general SEBI rules for demat accounts states that you can open more than one account with the same broker/DP. Nevertheless, KYC norms must be met. In addition to that, SEBI requires identity and address proofs, PANs, and more.

In India, the regulation and oversight of Demat accounts fall under the purview of the Securities and Exchange Board of India (SEBI).