As an investor in the stock market, it is very important to understand the basics of stock market and the common terminologies often used. Demat and trading account are among the two most basic things required for investing or trading in the stock market.
The basic difference between a Demat and trading account is that a demat account is an account where shares and other securities are held in a digital mode whereas trading account is an account which enables you to buy and sell stocks.
In this article let’s take a detailed look at the difference between Demat and trading account:
What is a Demat Account?
A demat account refers to a dematerialized account where shares and other securities are held in an electronic form. By opening a demat account, an investor will receive a demat account number for electronic settlement of trades. It is somewhat similar to your bank account which allows you to withdraw and deposit money. When you buy shares it is credited to your demat account. On the other hand when you sell shares it is debited from your demat account. However, unlike most bank accounts which require a minimum balance amount to be maintained there is no such requirement in the case of a demat account. You can keep a demat account active even if you do not have any shares or any other securities in your demat account by paying the yearly service fee.
What is a Trading Account?
A trading account is a mandatory requirement for purchase and sale of stocks listed on the stock markets. One can open the same through a stockbroker. Every investor is assigned a unique trading ID and password which is used to conduct trading transactions.
Key differences between demat account and trading account at a glance:
|Demat account||Trading account|
|Account used for holding shares and other securities in electronic format||Account used for purchase and sale of stocks listed on the stock markets|
|Investor is allotted a unique demat number||Investor is allotted a unique trading code|
|Functions like a locker for safekeeping your shares and other securities||Functions like a bank account to facilitate purchase and sale of stocks as well fund transfers|
How to open demat and trading account?
Choose a stock broker with whom you wish to open demat and trading account. Keep your documents handy such as PAN copy, Aadhar copy, cancelled cheque etc. Initiate the signup process by visiting the stockbrokers’ website. Depending on the frequency and amount that you wish to trade for, you may accordingly choose for a full service broker or a discount broker.
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Is it possible to open demat account without a trading account?
Yes, it is possible to open demat account without a trading account.
Is it possible to open a trading account without a demat account?
Yes, it is possible to open demat account without a trading account in case you wish to trade only in Futures and Options. However to trade in the cash segment it is recommended to have a demat account if you wish to take the delivery of the stocks purchased by you.
What are the different types of charges associated with demat account and trading account?
Demat account opening charges
While some brokers charge anywhere between Rs. 500 to 900 as demat opening charges, there are many brokerage firms that offer free demat account opening currently.
Demat account custodian fee
Some depository participants levy a demat account custodian fee which is chargeable on the basis of the number of securities held by the investor in his/her demat account. The charges normally vary between Rs 0.5 and Rs 1 for each ISIN.
Annual maintenance charges for demat account
Demat account annual maintenance charges levied by the depository participants usually ranges from Rs 300 to 900 on yearly basis. However, given the intense competition many DPs waive off this charge in the first year and make it chargeable from the second year onwards only.
– Written and contributed by Pradeep Sukumaran.