Are you looking to invest in the burgeoning stock market? If you’ve been following the markets or traders for quite some time, you might be aware of the point that a demat account and a trading account are prerequisites for trading and investing in stocks. A common problem, however, is the average investor does not understand precisely what are the differences between demat and trading account.
What is a Demat Account?
A demat account refers to an account to hold the shares, bonds, government securities and mutual funds in electronic form.
What is a trading account?
A trading account is largely referred to a platform that is used to enable transactions in shares/securities/stocks for investors.
Differences in the Nature of the Accounts
A dematerialized account (DEMAT) or stock account is designed to store shares, bonds, government securities and mutual funds in electronic version. The financial tools that are put in a stock account are traded in the stock market using a trading account.
Just think that you possess 1000 rupees in your wallet (let’s say trading account) you step into a grocery store (share market). You buy a range of items and decide on the final price. You then pay the due amount already available in your wallet. In this scenario, your wallet acts as the trading account since you used it to borrow the money needed for the transaction. Your shopping bag can be termed as the demat account since it now contains the assets you bought.
Difference in terms of opening the accounts
When it comes to opening a demat account or even a trading account, one needs to contact a SEBI permitted broker or the best stock broker in India and a Depository Participant (broker) listed with the NSDL or CDSL. If it is a trading account, there is no need to take any approval. However, there is no restriction on the number of demat or trading accounts an individual can have - although there is no logic in possessing multiple accounts. In fact, one cannot have more than one trading account with a brokerage since each account is exclusively attached to PAN card.
Every DP has defines its own set of brokerage charges. It becomes necessary for you check all the charges and compliance certificates typically shown on their website.
The Character of Demat and Trading Accounts in Trading Process
When a trader or investor buys a share using the trading account, the money gets shifted from the linked bank account and the shares are put in the demat account. When the shares are traded, the shares are obtained from the demat account and sold in the stock exchange and the money against those shares gets transferred to the bank account of the trader or investor.
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FAQs
How to open a Demat account?
· Choose a Depository Participant (DP).
· Fill the account opening form. Carry all your original documents with you.
· The DP will give you a copy of all the terms and conditions and the charges that will be imposed against all the availed services.
· Once the form is processed, you will be provided an account number/client ID and a password by the DP. These details are needed to access the demat account online or through the best online trading platform in India.
· One can manage his demat account without holding any securities. Also, there is no stress of maintaining a minimum balance either.
What are the major benefits of Demat account?
Demat account has brought in a paperless process to stock transactions. Therefore, making life considerably easier for traders and brokers.
There are lots of benefits of using a Demat account:
· Auto update: Your transaction details are automatically refreshed on the server which means you don’t need to manually update it each and every time you transact in stocks.
· Common account: Irrespective of the number of bank accounts and trading accounts you already have, your demat account can keep a watch on all of the details (bonds and investments) in a common account.
· Reasonable cost: A large portion of your trading charges can be brought down since paper maintenance is a thing of the past.
· Safety: Safety is one of the leading characteristics of a trading account. You can be rest assured about complete safety from theft and any kind of fraud.
· Time: As everything takes place online today, the transactions and deliveries are instantaneous, which means saving of considerable amount of time.
What is POA Number?
This denotes the Power of Attorney agreement, in which an investor allows a stockbroker to operate the account.
What are the documents required to open a Demat account?
Below are the documents needed to open a Demat Account
Proof of Income: Photocopy of Income Tax Return (ITR) Acknowledgment slip, salary slip, certificate of net worth
Proof of Address: Passport, Voter Identity Card, Registered Lease or Sale of Agreement of Residence, Driving License, Bank Statement not older than 3 months, etc.
Proof of Identity: PAN card, Aadhaar, Voter ID, Driving License, Passport are all accepted. Identity cards issued by the Central/State Governments, statutory bodies, public sector undertakings, etc.