Who is eligible to open a Demat Account?

Posted by Karan Sharma on November 9th, 2022

You will undoubtedly discover that you need to open a demat account if you search for a guide on how to begin investing in the stock market. If investors want to trade shares, they must have a demat account, according to SEBI (Securities and Exchange Board of India). For the simple reason that a demat account is an essential part of the electronic trading system. Its purpose is to hold shares or other securities that one buys on the stock market electronically. Can anyone, though, open demat account and begin investing?

Entities in India that are permitted to open demat account

1. A local individual

Anyone who resides in India, even children, may seek to open a demat account. If you physically resided in India for 182 days or longer during the tax year, you are considered an Indian resident under Indian law. Alternately, a person must reside in India for at least 365 days in the four years prior to the tax year, in addition to at least 60 days within the tax year.

2. Hindu Undivided Family  (HUF)

The HUF is seen as an one entity made up of all family members who share a common ancestor and pool their resources. The eldest member of the HUF, usually the oldest male member, is designated to start the demat account in his or her name.

3. Domestic Corporation

According to Section 2 (22A) of the Income Tax Act of 1961, domestic corporations and businesses may also open a demat account. Domestic companies are all businesses that are subject to taxation under the specified Income Tax Act in the previous sentence.

4. Non-resident Indians (NRI)

Indians residing abroad who are NRIs are also permitted to open demat accounts. An NRI is a person who resides outside of India but is either an Indian citizen or is descended from an Indian. A person of Indian origin is a citizen of any nation other than Bangladesh and Pakistan who once held an Indian passport or who is the child or grandchild of someone who once held an Indian passport. When opening a demat account, they must submit an NRI account.

5. Clearing Member 

Simply said, a clearing member (pool account) is a broker account where the broker keeps the securities of their clients. It also functions as the broker's account for receiving securities from the CDSL (Central Depository Limited Services) and NSDL depositories (National Securities Depository Limited).

Thus, opening a demat account is possible for all of the aforementioned entities. If you fall into one of the aforementioned categories, simply visit the website of a broker who is licenced by SEBI to begin the demat account opening procedure. You can open a demat account for free with some SEBI-registered brokers, such as IIFL Securities.