Demat VS Trading Account

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Demat VS Trading Account

Confused between Demat Account & Trading Account? This article will explain the important details between Demat vs Trading accounts. The stock market offers tons of opportunities for wealth creation. Regardless of your profession or social status, investment should be an integral part of your life. It prevents you from a rainy day. Investment is also essential for fulfilling your long-term financial goals. Once you have fixed a proper investment strategy, you need a Demat and trading account to start your investment in the stock market. Both Demat and Trading accounts perform different functions but it is mandatory to have both these accounts to begin your investments in the stock market.

Demat account is an account that dematerializes your shares, i.e. it converts them from physical format to digital format. Hence, it is also called a dematerialized account as it holds shares in digital format. To open a Demat account, you do not need to have any shares. You can have zero balance in your account. The functioning of a Demat account is similar to a bank account. The bank account records the money transactions while the Demat account records the sale and purchases of stocks. The Demat account can even store other forms of investments such as equity shares, bonds, government securities, and mutual funds.

Trading account is an account that can be opened with a registered stockbroker. Trading acts as a link between your Demat account and Bank account. While the Demat account holds your share in an electronic format, you need a trading account to conduct transactions. When you decide to buy shares the order is placed through the trading account. The transaction will go to the stock exchange for processing, the price of shares is deducted from your bank account and the corresponding shares will get credited to your Demat account.

Let us understand the difference between Demat and trading accounts with a simple example. You buy shares of a company worth INR 5000, the money gets debited from your trading account when you buy these shares. These shares are stored in your Demat account in an electronic format.

Here are some of the differences between Demat and Trading account:

Demat Account Trading Account
  • A Demat account is an account which stores the shares in the digital format. It holds the stock you own.
  • A Trading account is an account mainly used for the transaction of stocks. The trading account captures your flows.
  • A Demat account is a place where your shares and securities are stored digitally. The Demat account functions like a savings account.
  • A trading account works like a bank account. It withdraws money from your bank account to buy shares, similarly, it deposits money when you sell the shares.
  • In the case of a Demat account, there is an annual maintenance charge to be paid.
  • Maintaining a trading account does not involve any cost.
  • A Demat account holds your financial instruments.
  • Trading account is an account to trade these financial instruments.
  • Demat Account captures your wealth effect.
  • Trading account captures capital market transactions over a while.
  • A Demat account reduces the risk of a delayed settlement because it is done in a short period of time.
  • A trading account takes time in the settlement because it is done over a while.

Here are some of the steps to open a Demat account:

  • 1. To open a Demat account with Nirmal Bang, you will have to first fill an account opening form.
  • 2. Simultaneously, you have to submit the copies of required documents, passport-size photo and a PAN Card.
  • 3. You will have to go through the charges of the Demat account and agree to the terms and conditions.
  • 4. During the process, an in-person verification would be carried out. A member of Nirmal Bang would contact you to check the details provided in the account opening form.
  • 5. Once the application is approved, Nirmal Bang will provide you with a Demat account and a client ID.
  • Who can apply for a Demat and Trading Account?

    • Any resident individual including a minor, partnership firms, and proprietorship firms can apply for a Demat as well as a trading account.

  • Can I hold multiple securities in one Demat account?

    • Yes, you can hold other securities such as mutual funds and Government bonds in a Demat account.

  • Do I need to nominate anyone while opening a Demat and Trading Account?

    • Yes, as per the SEBI guidelines, you have to file a nomination form and allocate a nominee whenever you open a Demat or a trading account.

  • Can I add joint account holders to my Demat and Trading Account?

    • Yes, you can add 3 joint account holders for your Demat account. However, a trading account can only be in a single name, there are no joint holders.

  • Can I transfer shares from my Demat account to my spouse’s Demat account?

    • Yes, you can transfer shares from one Demat account to another. You can get in touch with your broker to know about the process.

Demat account is your virtual identity holding your financial assets whereas the trading account is your transactional identity for trading in the stock market. If you wish to trade in the stock market, it is necessary to have both the Demat and trading account. You can get in touch with the broker to know the procedure of opening both these accounts.