Basic Concepts of Trading and Demat Accounts

Last Updated: 2 Jan 2024

If you want to invest in stock markets, there are two prerequisites: you should have a Demat Account and a Trading Account.

Demat Account

A Demat or dematerialized account is where you hold your shares in an electronic format. Once you open an online Demat Account, you will get a Demat Account number which you quote while conducting the sale or purchase of stocks. The functioning of this account is similar to that of a bank account. Furthermore, the securities are debited and credited as per your sale and purchase.

The fundamentals of the two accounts are:

• Zero balance account: You don’t need to compulsorily have shares to open a Demat Account. In fact, you can have zero balance in the account.
• Opening a Demat Account: You cannot open a Demat Account directly with the Central Depository Services Ltd (CDSL). You have to approach an authorized Depository Participant (DP), who will open your account, and facilitate further transactions.
• Multiple accounts:As there is no restriction on the number of Demat Accounts which can be opened by any investor, you can have multiple Demat Accounts.
• Zero Account opening charges: As per SEBIs rules, no charges are levied for opening a Demat Account. However, you are required to pay Annual Maintenance Charge (AMC).
• Number of account holders: You can either open a single or joint Demat Account. One account can have a maximum of three people, with one main holder and two joint holders.

Trading Account

The second step for investing in stock markets is to open a trading account and start trading electronically in the listed shares of a stock exchange. This account allows you to purchase and sell securities through your Demat Account. A trading account is similar to a current bank account as it links your Demat and Bank Account.

• Opening a trading account: You can open a trading account by registering with a stock broking company. Post opening, you are assigned a unique trading ID to commence trading in stock markets.
• Fees and charges:You are not required to pay any charges to open a trading account. It is only while trading that you are required to pay charges like GST, stamp duty and brokerage.
• Allows trading on multiple stock markets: Once you open a trading account, you can trade in shares, derivatives, and futures in all stock markets, including National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).
• T+1, T+2, and T+3 in Trading Accounts: T means the trading day, and T+1 is the next trading day, and so on.

You can have a Demat Account without a Trading Account if you just want to keep stocks in your account. It is only when you want to trade that opening a trading account becomes mandatory. If you want to trade only in futures, options and currency derivatives, then you don’t require a Demat Account.

Conclusion

If you want to trade in stock markets, then having both a Trading Account and Demat Account is mandatory. Selecting a trusted financial partner, like IIFL, is important who can offer all investment options through a single platform and industry’s best stock and scheme recommendations.