Introduction

If you’re someone who is looking to step into trading securities, it is essential to know that your requirements stem beyond the capital you are looking to invest. To trade securities of any kind, you also require a dedicated securities wallet, an account with a trading entity and a bank account for transferring and receiving funds. There is a general misconception which prevails that only your broker would be responsible for providing you with a trading account as well as a Demat account. It is so common that the terms are often used interchangeably. However, they are different but complementing concepts.

What is the difference between a trading and Demat account?

A trading account acts as your identity in the securities market and enables you to purchase and sell off securities. In the online market, it is essential to have a trading account with a registered brokerage which would execute trades on your behalf.

A Demat account on the other hand is an abbreviation of a Dematerialised account. This account helps store your shares and securities in an intangible and electronic format. In India, there are 2 major security depositories that oversee the issuing of a Demat account and the storage of securities in it, the Central Depositories Services Limited (CDSL) and the National Securities Depository Limited (NSDL).

It must be noted that your trading and Demat account need to be linked so that the securities could be added and cleared from your Demat account automatically.

Currently, these are the following types of account options available that enable you to trade and store Securities: –

  • 3 in 1 account:A 3 in 1 account is a comprehensive account plan which offers you the services of a Demat account, trading account and savings bank account under one umbrella. The securities are sold and purchased using the trading account for which the payments and receipts are done using the bank account. The securities are then stored and cleared in their Dematerialised form through the Demat account. These types of accounts are usually offered by banking entities.
  • 2 in 1 account:A 2 in 1 account is one of the most common account options we see today. This account is exclusively opened for the trade and storage of securities, as it is an amalgamation of a trading and Demat account. Most discount brokerages offer a bundled opening of this account option. You can link any bank account you already have to your trading account to the transfer the funds required.
  • Unbundled accounts:This account option allows you to individually seek the required services such as trading account, savings account, and Demat account from different providers individually. Availing unbundled accounts would mean that you would have to carry out the tedious task of linking them together. However, they are a great choice in certain scenarios and can also save you money.

It is a good idea to go for an unbundled account?

One should go for an unbundled account in certain circumstances, for example. If you wish to receive securities with the purpose of solely storing them for the future, it would be wise to invest in a Demat account and pay for a trading account at a later time when you finally plan to sell off your security holding. This way, you would only have to pay for your trading account when you need it and you would end up saving money.

Similarly, you may also choose to consider having only a Demat account if you want to apply for an IPO and hold the shares for a relatively long term.

For traders, it is always a good idea to keep all three accounts linked together at all times. For example, if you are trading in equity and see the perfect opportunity to enter a trade, you decide to go ahead with only to realise that your trading account has insufficient funds. If you have your savings account linked to your trading account in such a scenario, you are less likely to miss out on such trades considering the volatility of the market.

However, if you are an investor, it might be a good idea to have an unbundled set of accounts. This way, you would be ensuring that you are not paying for the services you don’t plan on using. You would also have a choice to pick an account at a later date, which offers you the maximum benefits for your money. This way, you not only save on paying for only what you use but also get the maximum benefits out of your requirements.

It can also be noted that as an investor, you could link several Demat accounts to a single trading account provided you are the first holder for the account. Similarly, one can also link a single Demat account to multiple trading accounts.

However, one must carefully scrutinize all applicable charges before finalising on the accounts of their choice. There are many providers who impose multiple hidden charges and maintenance fees on the pretext of offering a lucrative account opening deal. Similarly, one must also factor in the intent and purpose of their account and finalise the best product and service available that fits their needs. For example, if you plan to hold shares under Rs.2 Lakh, a Basic Service Demat Account would be sufficient for your needs and would also spare you the cost of spending excessively on opening and maintenance charges. If you opt for a Basic Service Demat Account, you don’t have to pay any opening charges and the AMC would only be charged if your holdings amount to Rs.50,000 or more.