What is a demat and trading account- Indianmoney.com

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What is a demat and trading account?

 
                   

The stock markets are roaring. Money is doubling in shares. You too must be wanting a share of the pie.

But how can you invest in the stock market? Don’t you require a demat and trading account to invest in the stock markets.

Yes…you do…and if you want to invest in the stock markets you better learn about it.

What is a demat account?

The shares that you buy and sell on a stock exchange (BSE or NSE) are stored in a demat account. The shares that are stored in your demat account are dematerialized (stored in the electronic format) and not as physical shares.

When you buy shares your broker credits your demat account with shares. These shares are reflected in your statement of holdings (You can see details of the shares you have bought in your account).

When you sell the shares in your demat account your account is debited (Shares are debited/move out of your demat account) and money is paid to you for the shares you sell).

You need to submit a DIS (Delivery Instruction Slip) to your broker where you fill in the details of the shares you sell.There are 2 depositories in India. They are the National Securities Depositories Limited (NSDL) and the Central Depositories Services Limited.(CDSL).

 

How can you open a demat account in India?

A demat account can be opened with a depository participant which may be a bank or a stock broker who has a license to do so.You must have a PAN card to open a demat account as it is very important for your KYC (Know Your Client) norms.

 

You also require an identity proof (Voters card or your PAN card itself) and an address proof (Passport or a Drivers license).You have to sign across the copies of the passport and the PAN card and submit them to your depository participant as part of your know your client (KYC) norms.

What is a trading account?

You can only store shares in a demat account. In order to buy and sell shares you require a trading account.

You can also opt for the 3-in-1 account which is:

Your bank account + Demat account + Trading account

Simple:

You buy shares through your trading account

Money is debited from your savings bank account and shares are automatically credited to your demat account.

You sell shares through your trading account

                                               

Money is credited to your savings bank account and shares are automatically debited from your demat account.

If you use a 3-in-1 account your trading costs are high, but the sacrifice (high costs) are worth it.

You have hassle free trading (ease of use) as you can easily transfer funds using your bank account to buy and sell shares.

If you are a long term investor then in spite of paying a little extra in brokerage charges it is good to go for a hassle free 3-in-1 account especially if you are a first time investor in the stock markets.

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