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Why and Why Not A Demat Account

Post By : Category : Demat November 17, 2021

What is a Demat Account?
India has become a remunerative investment opportunity for many, majorly for the Non-Resident Indians (NRI) residing outside of India. So if they are planning to invest in the Indian Stock Market, they must have a Demat account.

A Demat account is a type of online account in which investors can hold their securities in an electronic format. Dematerialisation is a process in which physical securities are converted into electronic format. The Demat account is similar to a bank account as it too stores your money and comes with a specific account number & password to ensure security.

Why do NRIs need a Demat Account in UAE?

An NRI can invest from UAE in the shares of an Indian company as well as in domestic mutual funds via stock exchanges with the Portfolio Investment Scheme. In order to invest one needs to apply to a broker who is authorized for dealing in all your transactions and is recognised by the stock exchange market. After this process, all of the stocks bought by one will be held in the NRO Demat Account.

Types of NRI Demat Account in UAE:

The NRI accounts are opened by the individual who have been residing outside India for minimum 120 days in a year or spend less than 365 days in India in last four years. The individuals’ residential status if goes according to the Income Tax Act 1961, then the individual is termed as an NRI.

NRI can open their Demat account only if their earning is originating within India and these accounts facilitate the fulfilment of their investment objectives, financial obligations, and plans about their residency adequately. The Non-Resident Indian (NRI) is eligible for two different types of Demat Accounts with Alankit including:

  • NRE:
    The Non-Residential External (NRE) account is opened and maintained by NRIs, the account is opened to manage funds earned abroad and therefore, the money is fully repatriable, i.e. the money can be transferred abroad
  • NRO :
    The NRO Demat account is associated with an NRO bank account. It is opened to manage funds earned in India. Also, the NRO account is a Non-repatriable demat account. In this type of account not all money can be transferred abroad but only the principal amount of investments are repatriable after paying taxes as per the rules of RBI (Reserve Bank of India).

What benefits do the NRI Demat accounts hold?

The NRI Demat account in UAE holds various benefits including:

  • Facilitates investment in financial instruments:
    One can take part in the stock market trading and different investment schemes through the Demat account, these investments are facilitated through the Portfolio Investment Scheme (PIS) or NRI Portfolio Investment offered by the RBI. The RBI is the one which allows NRIs to trade in the Indian Market linked financial instruments such as equity shares and company debentures through their NRI account.
  • Tax Benefits:
    : The person with NRE account is liable for tax-free interest earning on their deposits according to the Income Tax Act 1961.
  • High Returns:
    NRIs who invest their funds in any fixed deposit account enjoy substantial returns on total deposits at negligible risks as these accounts have no fundamental ties to stock market fluctuations.

One not only needs to open an NRI Demat account but should understand the difference between the two:

Parameters NRE Demat Account NRO Demat Account
Purpose For investments on a repatriation basis For investments on a non-repatriation basis
Repatriation of Funds Fully Repatriable The principal amount is repatriable after taxation. One can transfer up to $ 1million in a financial year. The interest earned is repatriable after TDS is deducted.
Also Known as Repatriable Demat Account Non-repatriable Demat Account

Alankit offers you the privilege of NRI Demat Account and safeguards you from all the cons of the Demat by helping you avail the benefits and minimize the risk of errors.

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