Financial Instruments Held in a Demat Account

A Demat account (Dematerialized account) is an electronic account used to hold and trade various financial instruments in India, eliminating the need for physical certificates. Managed by Depository Participants (DPs) such as banks, brokerage firms, or financial institutions, under the regulation of the Securities and Exchange Board of India (SEBI) and depositories like the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), a Demat account provides a secure and convenient way to manage investments. Below is a detailed guide on the financial instruments that can be held in a Demat account, their characteristics, and related considerations.

Financial Instruments Held in a Demat Account

A Demat account can hold a wide range of financial instruments, allowing investors to consolidate their investments in a single account for easy management and trading. The following are the key financial instruments that can be held in a Demat account:

1. Equity Shares

   Shares representing ownership in a company, listed on stock exchanges like BSE and NSE.

   • Characteristics: Equity shares provide ownership rights, voting privileges, and potential dividends. They are traded on stock exchanges, with prices fluctuating based on market demand.
   • Details: Most common instrument in Demat accounts, enabling investors to buy/sell shares of companies like Reliance Industries, TCS, or Infosys. Held in electronic form, eliminating physical share certificates.
   • Example: An investor can hold 100 shares of HDFC Bank in their Zerodha Demat account, trading them via a linked trading account.
2. Mutual Funds

   Units of mutual fund schemes, including equity, debt, hybrid, or index funds.

   • Characteristics: Pooled investments managed by fund managers, offering diversification across assets like stocks, bonds, or money market instruments.
   • Details: Demat accounts can hold mutual fund units in electronic form, simplifying tracking and redemption. Investors can buy units through platforms like Groww or Upstox.
   • Example: Units of SBI Bluechip Fund or ICICI Prudential Equity & Debt Fund can be held in an Angel One Demat account.
3. Bonds

   Debt instruments issued by governments, corporations, or financial institutions to raise funds.

   • Characteristics: Bonds pay periodic interest and return principal at maturity. They include corporate bonds, government bonds, and tax-free bonds.
   • Details: Held in Demat form for secure storage and easy transfer. Investors can trade listed bonds on exchanges or hold them until maturity.
   • Example: A Demat account with ICICI Direct can hold bonds like 7.75% Government of India Bonds or NTPC corporate bonds.
4. Exchange-Traded Funds (ETFs)

   Funds that track indices, commodities, or baskets of assets and are traded on stock exchanges like stocks.

   • Characteristics: ETFs combine the diversification of mutual funds with the flexibility of stock trading. They track indices like Nifty 50 or gold prices.
   • Details: Held in Demat accounts for seamless trading. Popular ETFs include Nippon India ETF Nifty 50 BeES or SBI Gold ETF.
   • Example: An investor can hold units of Mirae Asset NYSE FANG+ ETF in their Upstox Demat account.
5. Government Securities (G-Secs)

   Debt instruments issued by the Government of India or state governments.

   • Characteristics: Low-risk investments with fixed interest payments and guaranteed principal repayment at maturity.
   • Details: Held in Demat form for secure storage and easy transfer. Investors can purchase G-Secs through platforms like Zerodha or HDFC Securities.
   • Example: 6.54% Government of India G-Sec 2032 can be held in a Demat account with Kotak Securities.
6. Corporate Fixed Deposits (FDs)

   Fixed-income instruments issued by companies, offering higher interest rates than bank FDs.

   • Characteristics: Fixed tenure with periodic or cumulative interest payments, carrying higher risk than bank FDs.
   • Details: Some corporate FDs are held in Demat form for ease of management, especially those listed or tradable.
   • Example: Bajaj Finance FD units can be held in a Demat account with Angel One, if offered in Demat form.
7. Debentures

   Unsecured or secured debt instruments issued by companies to raise funds.

   • Characteristics: Debentures pay fixed interest and may be convertible (into equity shares) or non-convertible.
   • Details: Held in Demat accounts for secure storage and trading, if listed on exchanges.
   • Example: Non-convertible debentures (NCDs) issued by Tata Capital can be held in an ICICI Direct Demat account.
8. Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs)

   Shares allotted through IPOs or FPOs of companies going public or raising additional capital.

   • Characteristics: IPOs/FPOs allow investors to buy shares at issue prices before listing on exchanges.
   • Details: Shares allotted via IPOs/FPOs are credited directly to the Demat account for trading post-listing.
   • Example: Shares of a company like Swiggy, allotted through its IPO, can be held in a Zerodha Demat account.
9. Rights Issues and Bonus Shares

   Additional shares offered to existing shareholders (rights issues) or issued free (bonus shares) by companies.

   • Characteristics: Rights issues are offered at a discounted price, while bonus shares are free, increasing shareholding without additional cost.
   • Details: Automatically credited to the Demat account, simplifying corporate action processing.
   • Example: A 1:1 bonus issue by Reliance Industries credits additional shares to an Upstox Demat account.
10. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs)

    Units of trusts that invest in real estate or infrastructure projects, traded on stock exchanges.

    • Characteristics: REITs/InvITs offer regular dividends and capital appreciation, providing exposure to real estate or infrastructure without direct ownership.
    • Details: Held in Demat accounts for trading and secure storage, similar to stocks.
    • Example: Units of Embassy Office Parks REIT or India Grid Trust InvIT can be held in a Groww Demat account.
11. Sovereign Gold Bonds (SGBs)

    Gold-backed securities issued by the Reserve Bank of India (RBI).

    • Characteristics: SGBs offer interest (2.5% p.a.) and capital appreciation linked to gold prices, without physical gold storage risks.
    • Details: Held in Demat form for secure storage and secondary market trading.
    • Example: SGB Series 2025-26 can be held in an HDFC Securities Demat account.
12. Derivatives (Futures and Options, if held until expiry)

    Contracts based on underlying assets like stocks or indices, settled in shares upon expiry in some cases.

    • Characteristics: Derivatives are high-risk instruments used for hedging or speculation, with physical delivery for certain contracts.
    • Details: If derivatives (e.g., stock futures/options) result in physical delivery upon expiry, the underlying shares are credited to the Demat account.
    • Example: Shares from an expiring Nifty option contract with physical delivery can be held in a Zerodha Demat account.

Comparison of Financial Instruments Across Popular DPs

Most DPs support a wide range of financial instruments, but their platforms and fees vary. Below is a comparison of instruments supported by popular DPs offering free or low-cost Demat accounts (as of July 28, 2025):

Additional Considerations

While a Demat account supports a wide range of financial instruments, investors should consider the following:

• Charges: Holding instruments incurs fees like AMC (₹0–₹900), transaction charges (₹10–₹50 per trade), and specific fees (e.g., ₹10–₹150 for dematerialization, ₹20–₹50 for pledges). Check the DP’s fee schedule.
• DP Limitations: Some DPs may not support all instruments (e.g., Groww may have limited support for derivatives). Verify the DP’s offerings before opening an account.
• Trading Account Linkage: Most instruments require a linked trading account for buying/selling, with brokerage fees (₹0–₹20 per order or 0.1–0.5%) impacting costs.
• Risk Profiles: Instruments like equity shares and derivatives carry higher risks, while G-Secs and SGBs are safer. Align investments with your risk tolerance.
• Corporate Actions: Dividends, bonus shares, or rights issues are automatically credited to the Demat account, but investors must monitor deadlines for actions like IPOs or rights issues.
• NRI Accounts: NRIs can hold most instruments (except certain restricted securities) in NRE/NRO-linked Demat accounts, subject to RBI regulations.

Tips for Managing Financial Instruments in a Demat Account

• Choose a Versatile DP: Select SEBI-registered DPs like Zerodha, ICICI Direct, or Angel One that support a wide range of instruments.
• Diversify Investments: Use the Demat account to hold a mix of equity shares, mutual funds, bonds, and ETFs to balance risk and returns.
• Monitor Charges: Review transaction and AMC fees to minimize costs, especially for high-frequency trading or niche instruments like REITs.
• Stay Updated: Use the DP’s app (e.g., Zerodha Kite, Groww) to track holdings, corporate actions, and market updates for timely decisions.
• Opt for BSDA: If holdings are below ₹4 lakh, choose a Basic Services Demat Account to save on AMC.
• Secure Your Account: Enable 2FA, use strong passwords, and add a nominee to protect your investments.

Conclusion

A Demat account is a versatile tool that can hold a wide range of financial instruments, including equity shares, mutual funds, bonds, ETFs, government securities, corporate FDs, debentures, IPOs/FPOs, rights/bonus shares, REITs/InvITs, SGBs, and derivatives (if physically settled). This consolidation simplifies portfolio management, ensures secure storage, and facilitates seamless trading under SEBI’s regulatory oversight. By choosing a reputable DP like Zerodha, Upstox, or ICICI Direct, diversifying investments, and monitoring fees, investors can leverage the Demat account’s flexibility to build a balanced and efficient portfolio in the Indian financial market.