A few decades ago, investing in stock markets was equated to gambling. People considered markets to be a money pit, however, with an increase in financial awareness, investing in capital markets has gained widespread acceptance in India. One can access the capital markets either indirectly through instruments like mutual funds or can invest directly. To invest directly, you mandatorily need to have a demat account.

Without a demat account, it is not possible to directly participate in the capital markets. It is a prerequisite to hold, monitor and manage securities. A demat account is simply a place to store or hold the shares or securities in their electronic or dematerialised form. Suppose you are a trader who deals in detergent soaps, you will buy the soaps from the manufacturer and store it in a warehouse. From the warehouse, you will supply detergent soaps to the retail stores for further sale. In the case of capital markets, the demat account is the warehouse where the securities are stored. Even though the trading account and the demat accounts are different, most people maintain both the accounts with the same broker, erasing the line between the two accounts. Trading account is the interface between the bank account and the demat account. The securities which are stored in the demat account are bought and sold through a trading account.

How demat account works

The demat account is a storage space for securities and doesn’t hold any cash. The question of transferring money from the demat account to the bank account arises when you sell securities such as shares or derivatives and get money in lieu of the sale. Generally, brokerages give bundled demat and trading account. The proceeds from the sale are automatically transferred to the linked trading account. Funds may take up to two days to show up in your trading account after a sale as the exchanges take T+2 days to settle trades. Once you have the money in the trading account, it can be easily transferred to the registered bank account.

What is a demat account?
How to transfer funds from demat account to bank account?

Every demat account is linked to a trading account, which is linked to a bank account. To buy or sell shares you have to transfer money from the bank account to the demat account first. With the emergence of a variety of payment solutions, brokerages allow fund transfer using all major payment solutions. Every major brokerage allows operations through multiple platforms like mobile, website or tablet. Across platforms, fund transfer activities are generally housed under the ‘Accounts’ or ‘Funds’ sections. The exact steps may differ slightly depending on the broker but are largely similar.

  • Login into yourtrading account and click on the ‘Funds’ section. Some apps may have ‘Accounts’ section instead of a ‘Funds’ section.
  • Once you are on the ‘Funds’ window, there are two options—add funds and withdraw.
  • If you want to transfer money from the demat account to the bank account, click on the ‘withdraw’ option. Alternatively, opt for the ‘add funds’ option, if you want to add money into your trading account to buy fresh securities.
  • When you choose the ‘Withdraw’ option, the brokerage will display information like the total amount in your trading account that can be transferred, and ask for the amount that you want to transfer. You can only transfer the money that is received by you after selling certain securities. Many people confuse total funds displayed on the home page with the transferable amount.
  • Most brokerages provide some leverage for trading and display the total limit on the home page. The limit of leverage depends on the funds you add to the trading account and the securities that are held by you in the demat account. The total fund limit and the transferable amounts are not the same.
  • On the ‘Withdraw’ page, you will have to enter the amount that you want to transfer. If you have multiple bank accounts linked to the trading account, you will have to choose the account you want to receive the money in. Once you fill the relevant details, you can enter the trading password and initiate the transfer. Depending on the mode of transfer chosen, it may take minutes to a few hours for the amount to be credited in your bank account

Conclusion

With the improvement in customer interface, transferring funds to or from the demat account has become extremely convenient and hassle-free. Don’t let the fund transfer process bog you down, start investing to build a secure financial future.