SEBI Rules for Demat Accounts: Complete Guide

Before opening a demat account, it is vital to learn more about SEBI’s rules pertaining to the same. Here is a deeper look at them below. 

What Is SEBI and Its Role in the Depository System

The Securities and Exchange Board of India (SEBI) is a statutory regulatory body that is responsible for supervising the securities market in India and safeguarding the interests of investors. It has a vital role to play in the depository system through regulating depositories and their participants, ensuring that they comply with key guidelines. 

SEBI also lays down the legal framework for the depository system, including the SEBI (Depositories and Participants) Regulations, 1996 and the Depositories Act, 1996. It ensures the integrity and transparency of the system while tracking the operations of DPs and depositories accordingly. SEBI also has the power to take enforcement actions against violators of its regulations while establishing standards for their operations. 

Account Opening Requirements

SEBI mandates specific KYC (know your customer) requirements for opening demat accounts in India. You will have to provide your proof of identity (PAN card), proof of address, and passport-sized photograph, along with a cancelled cheque/bank statement. 

Registration of your email ID and mobile number may be necessary along with income proof in case you wish to trade in futures and options (F&O). You should only choose a SEBI-registered DP for account opening purposes. IPV (in-person verification) is a must and can be done online (video call) or at the office of the DP. A BSDA (basic services demat account) may be created automatically in case you only have one demat account that is linked to your PAN and the value of holdings is lower than ₹10 lakh. 

SEBI Rules for Demat Account Closing

SEBI does not have specific rules for closing demat accounts, although the usual process is the following: 

• Submit a written request to the DP asking for the closure of your demat account 
• Transfer your holdings to another demat account or sell them before crediting the proceeds to your bank account 
• Settle all outstanding charges/dues to the DP 
• The DP will e-verify the application and close the account 

SEBI also states that no account closure charges are payable in the case of closure of BO (Beneficial Owner) accounts. 

SEBI Guidelines for Demat Account Nominee

The latest SEBI circular on nomination for demat accounts (10th January, 2025) requires each investor to formally opt out or nominate a beneficiary. It applies for all investment in securities and the deadline was 1st March this year for compliance (effective from this date). Failure to opt out/nominate a beneficiary may lead to demat accounts being frozen for debits. 

Up to 10 persons may be nominated as beneficiaries, with proper declaration by the investor and not the power of attorney (POA) holder. 

SEBI Circular for Demat of Shares

SEBI circulars mandate dematerialization of shares, and shareholders have to hold shares in the electronic form (demat accounts) to enable transfers and trading. The deadline for dematerialization has been revised several times and is now 30th June, 2025, for private companies. New investments by AIFs (alternative investment funds) should be in the dematerialized form, starting from 1st July, 2025. 

SEBI Rules for Basic Services Demat Account (BSDA)

• One individual may only have a single BSDA linked to their PAN. Joint accounts are not possible in this category 
• The total value of securities in these accounts cannot cross ₹10 lakh. If a demat account meets these criteria, it will be automatically converted into a BSDA.
• AMCs (annual maintenance charges) will be a maximum of ₹100 for BSDAs. For investments up to ₹4 lakh, there are no AMCs. In case they exceed this threshold but stay under ₹10 lakh, a fixed AMC of ₹100 may be applicable.
• A charge of ₹25 may apply if you want physical account statements. There are no charges for electronic statements.
• Investors are required to submit a written request to their DPs for account closure 

SEBI Rules to Open a Demat Account for a Minor

Here are some of the key SEBI rules in this regard. 

• The account should be opened and operated only by the legal guardian or parent 
• Minors cannot be joint holders in demat accounts and cannot engage in intraday trading, high-risk activities, or derivatives 
• Both the guardian and the minor should complete the mandatory KYC procedures (and offer proof of relationship)
• When the minor turns 18, the account should be converted to a regular demat account via a new form and fresh KYC formalities 

SEBI Rules for NRI Demat Account

• NRIs may invest up to 5% of the paid-up capital of listed Indian companies 
• They should maintain separate demat accounts for Repatriable and non-Repatriable funds 
• NRIs should complete the KYC process while furnishing proof of PAN cards and their overseas addresses 
• Some transactions, such as those linked to Repatriable funds, may require the RBI’s approval 
• NRI demat accounts should be linked to NRO/NRE bank accounts 
• NRIs may invest in the Indian stock market via the PIS system, opening a designated PIS account with an RBI-approved bank. The same NRE account cannot be used for other banking transactions once it becomes a PIS account
• NRIs cannot trade in currencies and commodities. They may trade in the F&O category for equity or index-related derivatives. However, this can only be done on a delivery basis and not in intraday form 
• SEBI has allowed a one-year extension for completing NRI KYC requirements

SEBI Guidelines for Demat Account Charges

The BSDA guidelines listed above are applicable in this case. At the same time, regular demat accounts usually come with AMCs between ₹300 and ₹800, depending on the DP. 

Client Segregation & Unique Client Code (UCC)

SEBI mandates the aggregation of client securities and funds by brokers to ensure their safety and keep misuse at bay. Hence, they should be separately kept from the assets of the broker, as per the Client Segregation rules. 

The UCC (Unique Client Code) is an alphanumeric identifier given to every investor by their DP or broker. It is the primary identifier for all their transactions and is crucial for linking the client account to the PAN and demat account. 

Margin Pledge / Re-Pledge Framework (SEBI circulars Aug 2020, Jan 2021)

SEBI has several circulars on the margin pledge/re-pledge framework, particularly from August 2020 and January 2021. The key aspects include the following: 

• Margin-funded positions should be supported by securities that are pledged in the depository system (rather than being transferred into the client account)
• All margin-funded positions were to be held in the depository system via the pledge, instead of in the earlier title transfer system
• The deadline for the transition was 1st August, 2020
• The new system ensures that securities do not leave the account of the investor and also that approved securities can be pledged without difficulties 

Quarterly / Monthly Statements

SEBI has mandated DPs to issue CAS (consolidated account statements) for both half-yearly and monthly transactions in demat accounts. 

Dormant / Inactive Accounts

SEBI classifies a dormant/inactive account as one where transactions have not taken place for a particular period (usually 12 months or more). SEBI has also relaxed the settlement norms for brokerage accounts that remain inactive for more than 30 days. Brokers now have to return funds to these accounts as per a pre-decided monthly settlement date (instead of within three working days). 

Charges & Transparency Norms

DPs must provide a detailed schedule of charges at the time of opening the account, while informing clients promptly about any changes. SEBI also mandates that MIIs (market infrastructure institutions) impose charges on end-clients that match the charges they receive. Thereby, this ensures zero hidden fees in the system. 

Grievance Redressal & SCORES

SEBI offers a platform called the SEBI Complaint Redress System or SCORES, where investors may file complaints against registered intermediaries and listed companies. You should first try to resolve the issue directly with the entity before filing your complaint. You can easily track the complaint status and seek reviews on the platform. 

Entities facing complaints have to file their ATRs (action taken reports) within 30 days with SEBI. Investors may seek a review of the same in case they are not happy. The first review for intermediaries is handled by SEBI. Yet, complaints should be filed within one year of the date of the cause of action. In case investors are unhappy with the case disposal on SCORES, they can look for further remedies through the ODR (online dispute resolution) system. 

Recent SEBI Updates (2023-24)

• AOPs (associations of persons) can now open demat accounts in their names for specific securities (excluding equity shares)
• The maximum value of investments allowed for basic services demat accounts (BSDAs) has been increased to ₹10 lakh from ₹2 lakh from 1st September, 2024 
• Shareholders, directors, and other relevant people in companies should have demat accounts before these entities file for public issues
• Investors can now nominate up to 10 persons and specify the asset percentage for each 
• A new system has been implemented for the direct payout of securities 
• New cybersecurity rules have been implemented for regulated entities 

Penalties for Non-Compliance

SEBI imposes varying penalties for non-compliance with multiple regulations. 

• General non-compliance attracts a fine of ₹50,000 per instance
• It is ₹10,000 per instance for delays in informing stock exchanges about board meetings on particular matters
• ₹2,000 per day is charged for non-compliance with Regulation 31 (4) of the Listing Obligations and Disclosure Requirements on shareholding patterns
• ₹1,000-50,000 per day is charged for not complying with disclosure norms regarding payment obligations, not getting prior approval for NCD/NCRP structural changes, and non-submission of issue proceeds deviations
• ₹2,500 per account is the charge for deviations in inspections of demat accounts 
• Not scanning/uploading DIS in the system attracts a fine of ₹100-200 per DIS
• ₹250-500 per account is charged for instructions that are not executed/entered erroneously by participants 
• SEBI may freeze demat accounts of promoter groups/promoters for non-compliance with minimum public shareholding and other norms
• Intermediaries like brokers may have their registration cancelled for non-compliance with registration norms 
• Trading of a company’s stock can be suspended for specific instances of non-compliance 
• SEBI may refer matters to the DAC (disciplinary action committee) in case the penalties cross specific limits