What Types of Securities Need Demat Accounts?

What types of securities need demat accounts in India isn’t a single universal answer — some, like listed shares and ETFs, are strictly mandatory with zero workaround. Others, like government securities, offer a genuine alternative path. And a fair number of common investments, from your PPF account to your fixed deposits, never touch a demat account at all, no matter how large your portfolio grows. Sorting these into the right category matters, especially with a fresh SEBI window opening in 2026 specifically for investors still sitting on old physical share certificates.

Here’s a nuance about SEBI’s original 2019 rule that many investors still get wrong: the mandate never actually banned holding physical shares — it banned transferring them. If you bought shares before April 1, 2019, and simply left them as paper certificates, you could technically still hold them. What you couldn’t do was sell, gift, or transfer them without first converting to demat form. That distinction has become newly relevant in 2026, since SEBI opened a special one-year window (running February 5, 2026 to February 4, 2027) specifically for investors whose pre-2019 physical share transfer requests were rejected or left incomplete due to documentation issues, letting them finally re-lodge those requests — though any shares transferred through this window now carry a mandatory one-year lock-in before they can be sold, pledged, or transferred again.

Securities That MUST Be in Demat

These categories have no legitimate alternative path — a demat account is simply a precondition for owning them at all.

• Listed equity shares — cannot be transferred, bought, or sold in physical form since April 1, 2019
• ETFs — trade exclusively on exchanges like stocks, making demat and a linked trading account mandatory by design, with no non-demat route available
• Most corporate bonds — listed corporate bonds sit in demat form, identical to how shares are held
• REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) — SEBI requires units to be issued only in dematerialized form, and has further directed the investment managers of REITs and InvITs to hold securities of their underlying holding companies and SPVs in demat form as well
• Securitised debt instruments — SEBI has set a ₹1 crore minimum for these products, alongside a mandatory demat holding requirement, positioning them firmly in institutional and high-net-worth territory
• IPO applications — allotted shares from an IPO get credited directly to your demat account; there’s no physical certificate route for new listings today

Securities That CAN Optionally Be in Demat

This is a smaller category, but genuinely important for investors who’d rather not open or maintain a demat account for specific holdings.

• Government securities (G-Secs, T-Bills, SDLs) — can be held in demat form through a broker or bank DP, or entirely outside the demat system through RBI’s own Retail Direct portal
• Sovereign Gold Bonds (SGBs) — offer a choice between demat holding and RBI’s own Bond Ledger Account, giving investors flexibility depending on whether they want SGBs sitting alongside their other portfolio holdings
• This optional category exists specifically because these are government-issued instruments with RBI itself maintaining an alternative custody infrastructure, something private corporate issuers don’t have the equivalent apparatus to offer

Investments That Never Touch a Demat Account

A meaningful share of common Indian investment products fall entirely outside the demat ecosystem, regardless of how they’re marketed or discussed.

• Traditional open-ended mutual funds — held through a folio number and Statement of Account (SoA), processed directly by the fund house or a platform like a Registrar and Transfer Agent, without any exchange trading involved
• NPS (National Pension System) — tracked through a PRAN (Permanent Retirement Account Number), a separate record-keeping system distinct from standard depository-based demat accounts
• Fixed deposits, PPF, and other bank or post-office savings instruments — these aren’t securities in the demat sense at all, and are tracked through the issuing bank or institution’s own account systems
• Insurance policies — tracked through the insurer’s own policy records, unrelated to depository infrastructure
• Physical gold and real estate — tangible assets with no electronic depository equivalent, tracked through entirely separate ownership documentation

The 2019 Physical Share Rule and 2026’s Special Window

Given how much confusion persists around this specific rule, it’s worth laying out the timeline clearly.

• SEBI amended its Listing Obligations and Disclosure Requirements (LODR) regulations to mandate that transfer of securities, except in cases of transmission (due to death) or transposition (reordering joint holders), be carried out only in dematerialized form from April 1, 2019
• SEBI later tightened this further, mandating that even transmission and transposition requests for physical shares require dematerialization, with the deadline for this extended over time
• Holders of physical shares have also been required to update PAN, bank details, nomination, email, and mobile number with the company or Registrar and Transfer Agent, with failure to do so risking a freeze on the folio
• The February 2026 special window specifically addresses a narrower problem: investors whose legitimate pre-2019 transfer requests were rejected or left incomplete due to documentation or procedural issues, giving them a structured one-year opportunity to finally complete that process
• Cases where the original share certificate is missing, or where securities have already moved to the Investor Education and Protection Fund (IEPF), remain excluded from this special window

REITs and InvITs: A Newer Addition to the Mandatory List

These relatively newer Indian investment instruments deserve their own mention, since the demat requirement here extends further than most investors realize.

• REIT units represent a portfolio of commercial real estate assets, largely already leased out and generating rental income
• InvIT units represent a portfolio of infrastructure assets, such as highways or power transmission networks
• Both are issued exclusively in dematerialized form to every applicant, with no physical certificate option ever offered
• SEBI’s requirement extends beyond just the investor-facing units — the underlying holding companies and special purpose vehicles (SPVs) that REITs and InvITs invest through must also hold their own securities in demat form, improving transparency throughout the entire structure

A Quick Checklist for What Belongs in Your Demat Account

Pulling everything together into a practical reference:

• Shares, ETFs, corporate bonds, REIT/InvIT units, and IPO allotments — always in demat, no alternative
• Government securities and Sovereign Gold Bonds — your choice, demat or a separate RBI-maintained account
• Mutual funds, NPS, fixed deposits, PPF, insurance, and physical gold — never in demat, tracked through entirely separate systems
• If you’re holding pre-2019 physical shares you never transferred, check whether SEBI’s 2026 special window applies to your specific situation before the window closes in February 2027

This is general educational information about demat account requirements for different security types, not investment advice. Rules and special windows can change, and confirming current requirements with your broker, depository participant, or a financial advisor is worth doing before acting on any specific holding.

FAQs

Q1. Is it illegal to hold physical shares in India today?

No, holding pre-2019 physical shares isn’t illegal, but you cannot transfer, sell, or gift them without first converting them to demat form, and doing so has been mandatory since April 1, 2019.

Q2. Do I need a demat account to invest in mutual funds?

No. Traditional open-ended mutual funds are typically held through a folio number and Statement of Account, entirely separate from the demat and depository system.

Q3. Are REIT and InvIT units available in physical certificate form?

No. SEBI requires REIT and InvIT units to be issued exclusively in dematerialized form to every applicant, with no physical certificate option offered.

Q4. What is SEBI’s 2026 special window for physical shares about?

It’s a one-year window (February 2026 to February 2027) letting investors re-lodge pre-2019 physical share transfer requests that were previously rejected or left incomplete, though transferred shares carry a mandatory one-year lock-in.

Q5. Is NPS held in the same demat account as my shares and mutual funds?

No. NPS is tracked through a separate PRAN-based record-keeping system, distinct from the standard depository-based demat account used for shares, ETFs, and similar securities.