Understanding Delivery in the Stock Market

Last Updated: 27 Dec 2024

What is delivery in stock market parlance and what is delivery trading all about. Delivery trading is when you buy a stock and take it into your demat account or when you sell a stock you hold via a debit to your demat account. If you are wondering what is delivery in share market, it is just another term for delivery trading and a contrast to intraday trading.

What is Delivery Trading?

Delivery trading is done in the trading account of an investor, dealing in shares that are held in the Demat account or are to be credited to the Demat account. In delivery trading, traders have to pay full margins and ensure that the first half of T+1 makes the payment to the exchange. If the payment is not made for the delivery trade by the next morning, the position can be squared off, and the loss, if any, will be debited from the client’s account.

How It Works

Before we understand what is delivery in stock market, let us understand how the settlement system works. India is on rolling settlements, so if you buy or sell a stock, you can reverse the transaction the same day and make it an intraday trade. Alternatively, you have to either take delivery when you buy or give delivery when you sell from your demat account. That is what is delivery trading.

What is Equity Delivery?

Let us understand equity delivery in terms of equity buying and equity selling. In equity delivery buying, you by the stock, pay the full amount latest by T+1 and get delivery into demat account by end of T+2 day. In the case of delivery selling, the trader can authorize the debit with the help of TPIN online and on T+1 day, the shares are automatically debited to the demat account and shares stand reduced by that extent in demat holdings.

What is the Difference Between Intraday and Delivery Trading?

Intraday trading is buying and selling on the same day or selling and buying on the same day. At the end of the day, the net position on the stock must be zero. In such cases, the demat account will not be impacted as the profits or losses on the intraday trade will be either debited or credited to your trading account. Delivery trading actually entails taking credit into your demat account by paying the full value of purchase by T+1.

How to Start Delivery Trading

In delivery trading, one purchases stocks and holds them in their Demat account until later, when they sell. Normally, selling is done when an increase in price from which to generate profit is envisaged. Here’s how to begin delivery trading:

• Open Your Account: First, you must open a trading and a demat account with a brokerage firm. The trading account lets you place orders for buying and selling stocks, and the demat account holds the bought stocks electronically.
• Select a Broker: You should select a broker that offers low transaction fees and a friendly interface. Brokers provide full or discount brokerage services, and you can choose any of these depending on your support level.
• Research Stocks: A stock that fits your investment needs should be researched before it is purchased. Its historical record, future growth potential, and market conditions should all be examined. Fundamental analysis and technical analysis can be tools for analysing stocks.
• Place Buy Orders: After you have chosen the stocks you want to buy, you need to place a buy order through your broker’s platform. Ensure that you have enough money in your trading account to cover the cost of the stocks.
• Monitor Your Investment: After buying the stocks, monitor the performance of your portfolio regularly. Use stop-loss orders to cap losses and be ready to change your strategy according to the market.

What are the Advantages of Delivery Trading?

• Long-term investment opportunity: Investors will benefit from capital appreciation over a long period.
• No intraday pressure: Unlike intraday trading, selling within the same day is unnecessary.
• Earning dividends: Investors are eligible to receive dividends from companies.
• Voting rights: Delivery traders can participate in company decisions through voting.
• Reduced stress: It offers more flexibility in long-term positions without constant monitoring.
• Wealth accumulation is suitable for gradually gathering wealth without frequent trade activity.

What are the Disadvantages of Delivery Trading?

• Requires significant capital: Delivery trading often requires more funds upfront, making it less accessible for small investors.
• Longer holding period: It may take time to see returns, as you need to hold the stock longer.
• Market fluctuations: You are exposed to market volatility, which can affect the value of your investment.
• Opportunity cost: Money tied up in delivery trading could have been used for other investments with higher returns.
• Limited liquidity: Selling shares might take time, and the process is less quick than intraday trading.
• Storage costs: For physical shares, there may be costs involved in storage and safekeeping.

Delivery Trading Charges and Minimum Margin

Several charges come with delivery trading, including:

• Brokerage Fees: A stockbroker charges brokerage fees on every transaction, which could either be fixed at an amount per order or vary depending on the transaction amount.
• Securities Transaction Tax (STT): The government collects this tax from the investor on every trade executed in the stock market exchange.]
• Transaction Charges: These are extra charges levied by the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE) for executing the trade.
• Turnover Fees by SEBI: The Securities and Exchange Board of India (SEBI) levies a turnover fee of 0.00010% on all delivery trades.
• Margin Funding: In margin trading, investors can buy more shares by paying a reduced price. The broker covers the remaining amount, applying interest, and the investor’s contribution is called the margin.

Conclusion

Delivery trading involves buying stocks and holding them in your Demat account until sold. The process requires paying the full amount by T+1, with shares credited to the Demat account by T+2. Unlike intraday trading, delivery trading doesn’t require selling on the same day, offering long-term investment opportunities and potential for capital appreciation.

Frequently Asked Questions

1. How does delivery of securities work?

When you want to buy for delivery, you must ensure that full amount is paid for taking delivery. The settlement is done by the clearing corporation but the broker handles that on your behalf. Delivery is always on net positions in the Online trading app. If you bought 500 shares of X and sold 200 shares on the same day, then the 200 shares sold will be intraday while the balance 300 shares net will come into your demat account. That is how delivery works on a net basis.

2. What is brokerage charged for delivery?

Brokerages vary from one broker to another but the general practice is to charge higher for delivery trades and lower for intraday trades. Of course, many low cost brokers follow the reverse practice of offering delivery trading free of cost.

3. Can I convert intraday to delivery?

Yes, converting an intraday position to delivery is possible if the trade hasn’t been squared off by the end of the trading day. The broker will typically charge an additional fee for the conversion, and the trade will then be settled as a delivery trade.

4. Is delivery trading profitable?

Delivery trading can be profitable for long-term investors if they choose the right stocks and hold them for an extended period. It offers the potential for capital appreciation and dividends, but the profits depend on market conditions, stock selection, and an investor’s ability to stay patient.

5.Can I sell delivery shares the next day?

You can sell delivery shares the next day, provided they have been fully transferred to your demat account. After purchasing stocks in delivery trading, the shares are typically credited within two days, and you can sell them as soon as the transfer is complete.