Different Types of Demat Account: Explained for Indian Investors

Opening a demat account is the first step towards investing in the stock market in India. Whether you're planning to invest in equities, exchange-traded funds (ETFs), bonds, or mutual fund schemes in electronic format, a demat account acts as your digital locker for holding securities.

While most investors are familiar with the term demat account, not everyone is aware that there are different types of demat accounts, each designed to suit different investor profiles, residents, NRIs, new investors, and institutions.

In this guide, we’ll walk you through the various types of demat accounts available in India and when each type may be relevant, including situations where they connect with mutual fund investing.

What is a Demat Account?

A demat (short for dematerialised) account is an account that allows investors to hold financial securities such as shares, bonds, ETFs, and mutual fund units in electronic form. It eliminates the need for physical certificates, making trading and investing easier and safer.

It’s important to note that for mutual fund investments, a demat account is not mandatory in most cases. However, if you're investing in ETFs or choose to hold your mutual fund scheme units in demat mode, having a demat account becomes essential.

What Are Mutual Funds?

A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. And the income / gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. Mutual fund schemes usually invest in a broad range of securities to diversify risks.

Type of Mutual Fund Schemes:

As per SEBI guidelines on Categorization and Rationalization of schemes issued in October 2017, mutual fund schemes are classified as –

• Equity Schemes
• Debt Schemes
• Hybrid Schemes
• Solution Oriented Schemes – For Retirement and Children
• Other Schemes – Index Funds & ETFs and Fund of Funds

When investing in mutual fund schemes, Indian investors can choose between two primary modes: Systematic Investment Plan (SIP) and Lump Sum Investment. 

Select Investment Mode

• Lump Sum: One-time investment, lumpsum investment involves investing a large amount of money at once, as opposed to spreading it out over time through systematic investments.
• SIP (Systematic Investment Plan): Systematic Investment Plans, or SIPs, offer a disciplined approach to investing, allowing individuals to invest a fixed amount regularly such as monthly, weekly, daily, or at pre-determined frequency.

Types of Demat Accounts in India

1. Regular Demat Account

This is the standard demat account meant for resident Indian investors.

• It allows you to hold and transact in shares, bonds, ETFs, and other listed securities.
• It is typically linked to a trading account, which is used to buy and sell securities.
• Regular demat accounts are offered by banks, brokers, and online trading platforms.

If you’re investing in Exchange Traded Funds (ETFs) or prefer to consolidate all your investments (stocks, mutual funds, bonds) in one place, holding mutual fund scheme units in demat form through a regular account can be useful.

An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. 

2. Repatriable Demat Account

This demat account is meant for Non-Resident Indians (NRIs) who wish to invest in Indian markets and repatriate the funds (transfer profits and capital abroad). Please note that the below mentioned points are in line with current understanding and may change over a period of time based on updated regulatory regulations, guidelines and rules. 

• Must be linked to an NRE (Non-Resident External) bank account.
• Requires RBI approval under the Portfolio Investment Scheme (PIS).
• Enables both capital and income repatriation, subject to certain conditions.

Relevant for mutual fund investors:

NRIs can use this account to invest in Indian securities, including ETFs and mutual fund schemes held in demat mode, with the flexibility to transfer returns abroad.               
 

3. Non-Repatriable Demat Account

Also for NRIs, this type of demat account allows investment in India without the ability to freely repatriate funds. Please note that the below mentioned points are in line with current understanding and may change over a period of time based on updated regulatory regulations, guidelines and rules. 

• Must be linked to an NRO (Non-Resident Ordinary) bank account.
• Used when the investment is made from income earned in India (like rent, dividends, etc.).
• Limited repatriation permitted as per RBI rules.

Relevant for mutual fund investors:

This account can hold mutual fund scheme units in demat form, where the investor does not intend to transfer the returns outside India.

(You are recommended to seek advice from professional before you take any/refrain from any action)

Specialised Categories of Demat Accounts

Beyond the standard three types, there are a few specialised demat account options for specific needs:

1. Basic Services Demat Account (BSDA)

Aimed at new investors, a BSDA offers lower or zero annual maintenance charges if your holdings are below ₹2 lakh.

• Available only to individual investors (not corporates or NRIs).
• Comes with limited services and lower costs.

If you invest in ETFs or other mutual fund schemes through demat but your portfolio is small, BSDA helps reduce overhead costs.

2. Joint Demat Account

This account is held jointly by two or more individuals. It allows shared access and is useful for family investments or estate planning.

• Up to three account holders can jointly operate a demat account.
• The primary holder’s details are used for communication and taxation.

If you're investing jointly in ETFs or holding mutual fund schemes in demat format, a joint demat account ensures shared control and simplified transmission in case of unforeseen events.

3. Corporate Demat Account

Used by companies, LLPs, or institutions to manage their investments in securities.

• Operated in the name of the entity.
• Requires corporate documents like board resolutions, PAN, and authorised signatories.

Corporates may invest surplus funds in mutual fund schemes through a demat account under this category.

Please note that the information provided for the above mentioned demat accounts are in line with current rule and guidelines and may be subject to change from time to time. You are requested to seek recommendation from your financial advisor based on your requirements and goals.

Do Mutual Fund Investors Need a Demat Account?

The short answer: Not always.

Most mutual fund scheme investors in India use the folio-based system, where units are allotted and tracked through an account maintained with the AMC or a Registrar & Share Transfer agent (RTA)

However, a demat account becomes necessary when:

• You invest in ETFs, which are traded on stock exchanges.
• You prefer to hold mutual fund scheme units in demat mode for consolidated reporting.
• You use platforms or brokers that operate exclusively via demat mode.

In such cases, the type of demat account you hold (Regular, Repatriable, etc.) must be compatible with your residential status and investment method.

(You are recommended to seek advice from professional before you take any/refrain from any action)

Summary Table

Final Thoughts

Choosing the suitable type of demat account depends on your residential status, investment goals, and preferred mode of holding securities. While a demat account is essential for trading in stocks and ETFs, mutual fund investors using folio-based methods may not need one unless they opt for demat-based holdings or invest in ETFs.

Understanding the differences helps you make better decisions, manage costs efficiently, and ensure compliance with applicable regulations.

Before opening a demat account, consider the features, costs, and services offered by the Depository Participant (DP), and ensure they’re registered with SEBI.

(You are recommended to seek advice from professional before you take any/refrain from any action)

Additional Links:

What is a Mutual Fund? - Beginner's Guide to Investing

Let’s Learn How to Invest in Securities Market

Association of Mutual Funds in India

What’s the easiest way to get started with Mutual Fund investments?