In this article, you will learn about what is Demat account, what is trading Account, Demat account Vs Trading account, and finally, answers to the most common questions regarding Demat and Trading accounts.
For those who are interested in Trading or Investing, you need to know about the Demat account and trading account. A lot of people lack clarity on it. This article will cover everything you need to know.
What is Demat account ?
Before 1996, there is no such thing as a Demat account. So, if anyone invests in any company, they will give shares in a paper format. But in 1996, the government of India passed an act called the depositary act. According to that act, everyone needs to have a Demat account and can do transactions only through a Demat account.
Later in the coming years, they started converting all the paper shares into Demat.
Demat means, De-materialization. Converting the paper form of shares into electronic format. After converting into an electronic format the shares are stored by central depositories.
To Open A Demat Account And Trading Account Click Here
Where the shares are stored ?
The shares are stored by central depositories like CDSL or NSDL. we can’t open accounts directly with CDSL or NSDL, because they are central depositories, not broking companies or depository participants.
We usually open our Demat accounts with depository participants like ZERODHA, UPSTOX, KOTAK, ICICI securities Etc. All these depository participants will select or tie up with either CDSL or NSDL to store the shares.
Benefits of Demat account
Before the Demat account, shares are given in a paper format. definitely, as time passes there is a possibility of paper damage and it is very hard to keep the papers safe for years. There is also a possibility of theft. But in the case of the Demat account, the shares are stored in dematerialization format.
other benefits of a Demat account are the easy transfer of securities. But it is not the case with paper shares.
Transparency, means if you urgently need some money and want to sell your shares. If the shares are in paper format, others will take advantage of your urgency and try to buy at a lower price. But it is not the case with the Demat account, as the liquidity is visible in your account, you can sell at the market price.
The other benefits are share splits and bonus shares automatically credited to account, hassle-free, and no tension of losing physical share certificates.
Demat account Vs Trading account
The main difference between the Demat account Vs Trading account is, Demat account is used to store the shares bought from the market. Whereas a trading account is required to conduct your trading activities, trading means buying or selling of shares.
To buy or sell shares, you need to have a Trading account. To store the shares, you need to have a Demat Account. Let’s see what are the possibilities or what can you do with only the Demat account and the Trading account.
Difference between Demat and Trading account
Only Trading account
Most of the intraday traders or traders who are not interested in investing will have a question that, do we need to have a Demat account?.
Well, if you are interested in only trading, you can trade without a Demat account also. But only in the future and options for intraday purposes and it is not possible to trade stocks even for intraday purposes. SEBI has made it mandatory to have a Demat account even for intraday trading of stocks.
Only Demat account
If you are not interested in trading and want a Demat account only for long-term investing. Still, you need to have a Trading account. Because a Demat account is used to store the shares after you bought from the market. But you need to have a Trading account to buy the shares from the market.
You can only apply for IPO’s, RBI bonds, and Gold bonds with a Demat account.
Most common questions
Below questions are the most frequent questions asked by beginners.
Can I link Demat account with different Trading accounts
The answer is yes, you can link your Demat account with different Trading accounts. But the broking company needs to accept it. Some companies will accept and link your Demat account with their trading account and most of the broking companies will not accept it.
Most of the broking companies will ask to open a Demat account with them. They will not allow you to link your Trading account with your Demat account.
What is 3 in 1 Account
3 in 1 account means a bank account, Demat account, and Trading account. The advantages of 3 in 1 account are, you don’t need to provide a cheque or check to open an account, the account can be opened very easily.
Money withdrawing is fast and quick and if there are any problems while withdrawing or depositing money, the problems will be solved quickly. as the account is interlinked with your bank account.
The disadvantage of a 3 in 1 account Is, the charges are more compared to normal accounts.
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