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Demat Account

Dematerialized accounts are also known as Demat accounts for short. Holding a Demat Account, in other terms, is the process of converting or dematerializing physical shares into an electronic format. The user will be provided with a number while opening the Demat Account. The number will assist the user in dealing with shares electronically. A Demat Account is similar to a bank account in terms of depositing and withdrawing funds.

Importance of a Demat Account:

  • Users can hold a wide range of financial products in the Demat Account, including equities shares, mutual funds, government securities, and exchange-traded funds.
  • It allows users to perform various tasks, such as trading and investing, etc.

Trading Account

A trading account is meant to assist in the operations of buying and selling stocks in the stock market. Users require a Trading Account once the Demat Account has been activated, to buy and sell securities. A unique trading number will be assigned to the Trading Account holder, which will be used to trade stocks.

Importance of a trading account:

  • Trading Accounts are used to place orders, and the transaction will be completed on the appropriate stock exchange.
  • The shares that have been bought will be transferred to Demat Accounts, and the funds will be deducted from the bank account.
  • It is interlinked with the Demat Account and Bank Account of the holder.
  • With an online trading account, users can have access to numerous stock exchanges, including the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), the National Commodity and Derivatives Exchange (NCDEX), and the Multi Commodity Exchange (MCX).

Difference between Trading and Demat account

Demat Account Trading Account
Function A Demat account’s primary purpose is to store securities such as shares in an electronic format. The purpose of a trading account is to place orders and sell securities and stocks in the stock exchange.
Nature A Demat account works in the same way as a savings account. Demat accounts allow investors to keep financial instruments in a dematerialized or electronic form. A trading account, on the other hand, works like a regular bank account, where the account holder uses it to make purchase and sale transactions.
Objective A Demat account’s primary function is to safeguard the safety of an investor’s shares. It allows investors to store their shares electronically rather than physically. It keeps track of the holder’s current assets, such as stocks or shares. The primary objective of the trading account is to buy and sell stocks. It gives users access to the stock market and allows them to trade.
Operating Module As it holds shares and other securities, a Demat account is a flow statement that shows a user’s trading transactions and is always measured over time.  A trading account is a flow statement that records and measures a user’s trading transactions over time.

Steps to open a Demat Account:

Step 1: Contact a Depository Participant (DP). Central Depository Services (India) Ltd and National Securities Depository Ltd both include a list of them on their websites.

Step 2: Complete the account registration form. Attach all required documents, including proof of address and identification.

Step 3: Users will have to sign a contract. As an investor/DP, your rights and duties will be outlined in this agreement. Get a copy of the contract as well as a list of the associated fees.

Step 4: A new account is created. A Beneficial Owner Identification Number, commonly known as a Demat Account Number, will be issued to the holder.

Steps to open a Trading Account?

Step 1:Find a reliable broker or firm.

Step 2: Initiate opening a trading account with the services of the brokerage firm.

Investing in stocks is now super simple

  • Free Demat

    account

  • ₹20 per trade

    or 0.05% (whichever is lower)

  • Zero AMC

    charges

Step 3: Complete the account registration form. Submit relevant documents, including KYC information, address, and identification.

Step 4: The application will be verified by the authorities, which will take some time.

Step 5: The trading account information will be sent to users.

How to Open a Demat Account Before a Trading Account?

There is no legal requirement to open both a Demat and a Trading account. Users can open a Demat account without first opening a trading account. A Demat Account, for example, would suffice if users had applied for an Initial Public Offering (IPO) and only wanted to keep the shares. However, if users wish to sell these shares on the stock market, they’ll need to open a trading account.

How to Open a Trading Account Without a Demat Account?

A Demat Account is not required if users merely want to trade futures, options, and currency derivatives. As all of the trade forms are paid in cash. SEBI has made it mandatory for investors and traders to have a Demat Account to trade in all types of equities, including equities intraday trading.

Demat Account V/s Trading Account

To purchase stock in the stock market, users must first fund a trading account. Users can deposit a margin in the trading account by debiting the bank account via NEFT/RTGS/IMPS or a payment gateway transaction. This margin can then be utilized to buy shares.

Shares that haven’t been squared off during the intraday trade are sent to the user’s trading account for delivery. Users must fund the remaining delivery amount by the T+1 deadline. Users will receive a credit to the Demat account on T+2 and will be able to sell shares held in the account at any time.

When an account holder sells, the shares are debited from the Demat account on the T+1 date. The value of the shares sold is then credited to their bank account at the end of the T+2 date. As a result, both are distinct components of the trading process, yet they are equally important.

Demat vs Trading Account – FAQs

Q1. Is it necessary to include nominees when opening a Demat or trading account?

Individual beneficial owners must name a nominee when opening a Demat or trading account, as it simplifies the procedure of transferring shares.

Q2. Is it possible to open a Demat or trading account with a partner?

Yes. A Demat account can also include a maximum of three account holders, including one primary holder and two joint account holders.

Q3. What is a Demat Account and Trading Account?

A Demat account is an account used to convert physical shares to electronic. A trading account on the other hand is an account that is used to buy and sell shares from stock exchanges.

Q4. Is it necessary for me to have both a Demat and a trading account?

The money is debited from your Demat account on buying shares, and a trading account is used to make purchases and sales. As a result, having both a Demat and a trading account is required to trade in the stock market.

Q5. Who is eligible to open a Demat and Trading Account?

Anyone who is a resident of the country, including minors, partnership firms, and sole proprietorship firms, can open a Demat and trading account by registering and completing the KYC procedure.

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