Trading and Demat Account: Starting from the basics
Created on 15 Oct 2020
Wraps up in 5 Min
Read by 8k people
Updated on 10 Sep 2022
Change is the only constant. From our clothes to food, to the way we live; everything keeps on changing and evolving. And along with everything else, the ways of making money, trading and investing has also changed and evolved with time.
We no longer follow those techniques which our parents used to follow. The last three months saw about 24 lakh new Demat and Trading accounts being opened, and this number predominantly contains youngsters. We are now much more aware and conscious of our investment decisions. At the same time, times are also riskier, and even a few silly blunders may cost you a lot. And one such blunder might be not understanding what a Demat and trading account is.
Let us get down to the basics and start from the beginning.
What is Demat account?
Almost everyone has a bank account, which lets you deposit and withdraw cash. A De-mat account is similar to a bank account which allows you to hold your securities in an electronic form.
Say you have some physical shares, then, in that case, you can simply open a Demat account and hold them in electronic form. Thus, a Demat account offers the safety of your securities. Also, you can keep money in them or withdraw them whenever you want. In order to maintain a Demat account, you need not maintain a minimum balance or hold any stocks. You can open one even without having any stocks in your portfolio.
However, this account does not allow you to trade them. In short, it allows you to hold the securities, but you won't be able to buy or sell them.
Types of Demat account
As you might have understood what a Demat account is, let's quickly find out its types and varieties and know-how they differ from one another
1. Regular Demat account
This is an ideal account if you are a residing Indian and want to store some of your securities or equities in electronic form. If you are interested in investing in IPOs, these accounts can be of use.
However, problems arise when you wish to sell them as you will need a trading account for the same.
Further, SEBI has brought into the picture a new regulation wherein a holder will not be required to address any maintenance charges if the holdings are less than 50,000.
2. Repatriable Demat account
If you are an NRI looking for an account that allows you to transfer funds from the country of your stay into India, then Repatriable accounts are the one for you. This account allows you to transfer up to 1 million USD in a year. However, you will need an NRE bank account for opening this sort of Demat account.
Non – Resident External or NRE account is a bank account which is based on rupee denominations, opened by an NRI to facilitate the various transactions with his or her home country.
3. Non- Repatriable account
This is also for those who are residing outside of India. However, unlike in the case of Repatriable accounts, the investor is barred from transacting any money from abroad. You will need to have an NRO account for opening a Non- Repatriable account.
Say, you are living abroad and wish to hold the stocks which you bought while you stayed in India then such accounts can be of use.
What is Trading Account?
As mentioned earlier, a De-mat account is only a means through which you store your securities. But if you wish to buy more or sell the already existing ones, then you will need a trading account. This can be, further, divided into the following:
1. Equity and derivatives trading account
This is the most common form of account which allows you to trade in shares, futures and options. The transactions can either be made online inconvenience at your home or offline by asking your broker to make transactions on your behalf. All your transactions will be executed in T+1 day.
Further, you don't need a Demat account if you are trading in futures and options as it expires within a particular duration. But in the case of stocks, you might need a Demat account.
2. Commodity trading account
If you are someone who wants to trade in Multi commodity exchange (MCX), then you will require a commodity trading account. On the event of opening a commodity trading account, you will be able to freely transact and trade in commodity futures and options.
Even here, the transactions are fulfilled in T+1 day.
3. Discount broking account
These are ideal for those transacting huge volumes of stocks. These accounts charge a lower fee and are restricted from offering any other additional services. However, the services such as call and trade option can be availed by payment of a specific fee.
As an investor, you can either open any one of the above accounts or 2-in-1. Sometimes certain bank based broking institutions offer 3-in-1 service accounts. This is an option when you open an account with a bank based broking firm. It offers hassle-free banking service along with the trading and demat account.
Demat vs trading account: A snapshot of differences
Let’s now discuss a few differences that lie between both:
A demat account can be opened to store shares and securities in electronic form.
A trading account is opened to buy and sell in the securities.
On the successful opening of the account, the investor will be provided with a unique ID number.
Here once you open the account, you will be provided with a Trading ID.
To offer safety of the shares held.
To ensure that you have a hassle-free buying and selling of assets or securities.
How to open a trading and demat account?
In order to open a trading and demat account, you need to be 18 years old or will require a legal guardian. Hence, despite your age, you will be allowed to operate in shares and securities.
You will need a PAN card in order to open one. Further, the following steps will have to be followed to open demat and trading accounts.
- In case of a demat account contact, the depository participant or DP, the details of which can be obtained from the official Central Depository Service or National Securities Depository Limited. For opening a trading account approach a broker or broking firm.
- Provide proofs such as address proof, PAN card, ID proof, etc. and fill in the KYC form as well.
- In the case of a Demat account, you will be required to sign an agreement. Do not forget to get a copy of the same.
- For a trading account, you will have to undergo a verification process.
- After a few days, your trading and demat account will be set and ready to be activated and used.
To Sum Up
Following the above steps will help you in successfully choosing the right account and getting it activated. Selecting the right account as per your usage and needs will help you indulge in responsible trading as well.
Trading in the stock market is becoming easier and more convenient these days; however, it is important to know the basics about demat and trading accounts before getting started with stock trading.
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