With share certificates becoming obsolete, having a trading and Demat account has become a necessity if one wishes to trade shares in the Indian Stock market. Using these two accounts, investors can buy and sell shares as per their convenience. Before you move ahead with trading, you should know the difference between demat and trading account.
Below are few points highlighting the difference between trading account and demat account:
Shares that are bought and sold are stored in Dematerialised accounts, or Demat accounts as they are better known.
A trading account, on the other hand, serves as an intermediary between your bank and Demat account. It takes the shares held in the Demat account and sells them in the stock market.
Thus, while a Demat account resembles your savings account, that is, a storage facility; a trading account is your current account for stock market purchases.
A Demat account is a facility that retains financial instruments such as shares and securities. It can also be used for the re-materialization, that is, the conversion from electronic to physical form, of securities. The very act of buying and selling is done with a trading account.
If you wish to trade only futures and options and currency, you need only a trading account. However, if it is stocks you wish to trade, you will require both trading and Demat accounts.
When you buy a share using your trading account, money is transferred out of your bank account and the share is transferred into your Demat account. When you sell a share, the share is taken out of your Demat account, sold in the stock market and the money obtained from the sale is transferred into your bank account. Thus, both Demat and Trading account are needed for successful execution of trade.
There is no legal limit on the number of Demat or trading accounts a person can hold using one PAN card. You can hold more than one Demat or trading account with the same or different Depository Participant or broker respectively.
If you wish to possess more than one Demat account, you will incur an Annual Maintenance Charge (AMC) for every account, irrespective of whether you actually make use of each. Along with this, you will also have to bear the cost of custodian and transaction fees. Apart from the initial cost of opening a trading account, you will incur no extra charges if you have more than one trading account.
Within the comfort of one’s home, trading and Demat accounts ensure safe and convenient share trading.