Demat and trading accounts form the necessary foundation for an investor to seamlessly execute stock market trades online. To understand them thoroughly, one must know how to open these accounts, have clarity on their purpose and benefits, and subsequently use them to perform transactions efficiently.
What is a Demat Account?
A Demat or dematerialised account is an account where one can store their shares electronically. Demat accounts revolutionised the traditional way of exchanging physical stock certificates as it caused delays and damage to the share certificates as they might be misplaced or torn. A Demat account is to stocks, what a digital wallet is for our money. Here, you hold your securities securely, and with every share traded, the account gets credited or debited accordingly. On the creation of a Demat account, you get a Demat account number, which is to be used for all future transactions.
An interesting thing to note about the Demat account is that you do not need shares to open such an account. You can have nil balance and open or maintain an account.
How to open a Demat account?
- Firstly, you need to choose where you would want to create a Demat Account. Then you are supposed to select the Depository Participant you wish to create the Demat account with. Read here on factors you must consider before opening a Demat account
- Fill up an application form and submit it along with the copies of personal identification documents such as Aadhar Card, PAN card for verification.
- During the process, an in-person verification will be carried out. A person would reach out to you to verify whether the mentioned details are correct.
- Once the application is processed, you will be provided with a Demat account number and a client ID, which can be used to access the Demat account.
- A negligible annual maintenance fee is to be paid to maintain the account, the rates of which are set by the depository participants (DP).
What is a Trading Account?
A trading account facilitates the buying and selling of stocks online. A trading account holds all the securities, cash, and other investments held in brokerage accounts and enable buying and selling of these investments at a click of a button. Such an account allows buyers to frequently trade in stocks at any given point of time in the day. You are provided with a unique trading ID that is used to transact.
How to open a Trading Account?
- Firstly, select a brokerage firm which will be beneficial for you in the long run. Depending on your trading requirements, investment frequency, and brokerage costs, choose a brokerage firm that facilitates your purpose well.
- Secondly, you should be aware of the trading account opening procedure. Usually, a KYC form needs to be filled up, which will be sent by a representative visiting your place.
- Background and personal verification are conducted by a third-party agency, post which a confirmation will be sent, and your account will become active.
- Several brokerage firms offer a Demat-cum-trading account along with their bank account to provide customers with seamless investment experience.
What is the difference between a Demat Account and a Trading Account?
One significant difference between the two accounts is the function they perform. A trading account is used for the buying and selling of securities. With every trade request, the securities are debited or credit from the Demat account accordingly. A Demat account stores your stock holdings electronically, which is linked to their trading account. While one is required to facilitate the exchange of transactions, the other enables the safe-holding of the assets in a dematerialised format. However, both of them are necessary to have while trading in the stock market.
Both Trading and Demat accounts are necessary for an investor to invest seamlessly online. Choosing the right brokerage house becomes crucial to ensure the experience is smooth. Read here to know what you should consider before choosing a brokerage firm to invest in.