Understanding Demat Account
A Demat account stores shares and other securities in electronic form. Dematerialisation is the process of converting your physical into an electronic format. So, a Demat account is also called a Dematerialised account. In other words, having a Demat Account refers to dematerialising or converting the physical shares into electronic format.
Importance of a Demat Account
A Demat account is quite significant for investors due to the following reasons.
The Demat Account allows users to hold a variety of financial instruments like exchange-traded funds, government securities, mutual funds, and shares of stocks.
It eliminates the chances of theft, counterfeiting, loss, and damage of physical certificates.
Demat account enables quick share transfers as they are held digitally.
It reduces the paperwork involved in physical share certificates.
Understanding Trading Account
A Trading account is an investment account used to purchase and sell shares. To trade in the share market, you must have a trading account with a distinct trading number. When you begin trading on stock exchanges, you will require three accounts. They are trading & Demat accounts along with a bank account. You may trade stocks and other securities using a trading account. It serves as a link between your bank and Demat accounts. A trading account allows you to place buy and sell orders online. So, it makes trading quite easier.
Importance of a Trading Account
A trading account is essential for investors due to the following reasons.
Orders are placed using a trading account. The stock exchange receives the buy and sell orders of traders via their trading accounts.
It is linked to the holder's bank account and Demat account. This facilitates seamless trading in the share market.
Many stock exchanges, such as the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National Commodity and Derivatives Exchange (NCDEX), and Multi Commodity Exchange (MCX), are accessible to customers with an online trading account.
Difference Between Demat And Trading Accounts
Here’s a table summarising the key differences between a Demat and trading account.
Parameter
Function
Demat Account
A Demat account primarily holds the securities in electronic format.
Trading Account
A Trading account enables investors to place buy and sell orders with the stock exchange.
Parameter
Nature
Demat Account
A Demat account works like a savings account. However, it holds your securities instead of money.
Trading Account
A Trading account facilitates making transactions for purchase and sale of assets.
Parameter
Objective
Demat Account
The main aim of a Demat account is to provide safe storage for securities in digital format. It also helps track all the investments in one place.
Trading Account
The key purpose of trading accounts is to buy and sell securities like stocks. So, it facilitates trading in the stock market.
Parameter
Operating Module
Demat Account
A Demat account is like a flow statement that enables investors to track all the transactions.
Trading Account
Trading accounts is like a flow statement that keeps a record of all the transactions.
| Parameter | Demat Account | Trading Account |
|---|---|---|
| Function | A Demat account primarily holds the securities in electronic format. | A Trading account enables investors to place buy and sell orders with the stock exchange. |
| Nature | A Demat account works like a savings account. However, it holds your securities instead of money. | A Trading account facilitates making transactions for purchase and sale of assets. |
| Objective | The main aim of a Demat account is to provide safe storage for securities in digital format. It also helps track all the investments in one place. | The key purpose of trading accounts is to buy and sell securities like stocks. So, it facilitates trading in the stock market. |
| Operating Module | A Demat account is like a flow statement that enables investors to track all the transactions. | Trading accounts is like a flow statement that keeps a record of all the transactions. |
How to Open a Demat Account?
It is not mandatory to open a Demat account along with a trading account. Individuals can also open a trading account before opening a Demat account. A Demat account can be opened offline or through an online method. For this, you will have to provide the following documents.
The list of documents needed to start a Demat account is as follows:
Identity proof
Address proof
PAN Card Identification proof
passport-size pictures
The steps to open the Demat account are as follows.
Obtain the account opening form from the broker. You can get it offline from the broker’s office. To get it online, visit the website and go to the Demat account section.
Fill out the form properly. Provide all the relevant details like name, date of birth, address, email and phone number.
Next, submit the necessary documents. The broker will use them to verify the information provided by you.
Now, fill out the Know Your Customer (KYC) form and complete the KYC requirements.
After successful verification of your application, the broker will activate your Demat account. You shall receive your login credentials via email or message.
How to Open a Trading Account?
Follow the steps mentioned below to open a trading account.
Step 1: Pick a trustworthy stockbroker.
Step 2: Start the account opening process. Obtain the account opening form. You can also find it online on the broker’s website.
Step 3: Fill out the form and submit it. Also provide the necessary documents, such as your address and identity proof. Also, provide your PAN details.
Step 4: Next, the broker will verify your application.
Step 5: After the verification process is complete, the broker will activate your trading account. You will receive the login credentials via email or SMS.
Fees and Charges of Trading Account & Demat Account
To use the services, you need to pay the following required fees and Demat Account charges:
- Account Opening Fees
It is the charge levied by the broker to open a trading and Demat account. However, some brokers are now offering zero account opening fees.
- Dematerialisation or Rematerialisation Charges
It is the fee for converting the share certificates from the physical to digital format.
- Annual Maintenance Charges (AMC)
The broker levies an annual maintenance charge to maintain your trading and Demat accounts. It is usually charged annually. Moreover, the charges vary from one broker to another.
- Brokerage Fees
It is the fee or commission that stockbrokers charge for all the services. It may be a fixed fee or based on the number of transactions carried out in an account.
- Off-Market Transfer
It is the fee for transferring shares from one Demat account to the other without involving a stock exchange.
- Custodian Fees
These charges are levied monthly depending on the number of shares held in the Demat account. The standard charge ranges from Rs. 0.5 to Rs. 1 for each ISIN.
Conclusion
A Demat account acts as a repository of securities in a digital format. However, trading accounts allow you to place your orders for buying and selling assets. So, there is a clear difference between the two investment accounts. However, you need both trading and Demat accounts to invest in the share market. Without a Demat and trading account, you cannot trade online. Moreover, the two accounts are linked to facilitate trading. An investor won't have to go through two separate processes since the integration makes the process seamless. However, there are several charges levied on these accounts. So, consider them before opening your accounts with a broker.
FAQs on Difference Between Demat Account and Trading Account
Who is eligible to open a Demat and trading account?
Anyone (Minor or adult) can open a Demat and trading account. All you need to do is submit your PAN card, government ID, and address proof and fill out a KYC form. After that, your broker will verify and complete the account opening process. Once the process is complete, a client ID is created that can be used for future transactions.
Is it possible to hold multiple securities in one Demat account?
Yes, you can hold multiple securities in one Demat account.
Yes, it is possible to transfer the shares from one Demat account.
Is it possible to open a joint Demat account with a trading account?
No, an investor cannot open a joint demat account to a trading account. Only one name is used to open a trading account. This also means that each trading account is associated with the investor's unique PAN number.
How do you know the trading account number?
You can know the trading account number in the following ways:
Contact your broker, as they provide this information when you open the trading account.
You can check your welcome kit and account-related documents provided during account opening.
Log in to your broker’s online portal or mobile app to get the account details.
Lastly, you can contact customer support.
What does a trading account mean?
A trading account refers to an investment account used for trading securities. A stockbroker provides the account and allows you to buy or sell securities.
What is a trading account in India?
It is an account that is used to place buy or sell orders on the Indian stock market.
What is the difference between trading and demat accounts?
The difference between a demat and a trading account is that demat accounts hold shares and securities (bonds, ETFs, mutual fund units, etc.) electronically. Whereas a trading account facilitates share purchases and sales.
Is the trading account taxable?
Yes. The profits you earn from the sale of shares, bonds, debentures, mutual funds, etc, within one year of your purchase is considered short-term capital gain. Under the Income Tax Act, this is subject to a flat 15% securities transaction tax (STT).
Who is eligible for a trading account?
Both adults and minors are eligible to open trading accounts.
