If you have considered investing in the stock market, you would know about trading, demat, and bank accounts. These are all required to allow you to trade in stocks and shares.
Often, individuals are confused between these different kinds of accounts. A bank account is needed to receive money and pay for your trades. A demat or dematerialization account is used to hold your investments in shares and other instruments in a digital form. Lastly, a trading type of account is the intermediary between the demat and bank account.
Nature of the account
The demat account is like a savings account and used as a storage facility. The investments brought on the stock exchange are held in this account. When you sell your investments, the dematerialization account is reduced by the sold quantity. On the other hand, A trading account is used to purchase and sell your investments on the stock market.
Functionality of the account
A dematerialization account is a holding account to retain your various investments in a digital form. You may also use this account to convert physical instruments to an electronic form and vice versa. The processes are known as dematerialization and re-materialization. The trading account is needed to buy and sell securities. If you simply want to trade in currencies or derivatives (futures and options), only this type of account is needed. However, to trade on the stock exchange you need to hold trading as well as dematerialization accounts.
Working of the account
When you execute a buy trade, your bank account is debited with the money. Furthermore, the shares are transferred to your dematerialization account. On the other hand, when you sell any security, the bank account is credited with the amount while the shares are transferred from your dematerialization account.
Charges
You may hold multiple accounts with the same or different service providers using your permanent account number (PAN). However, you will have to pay the annual maintenance charges on every dematerialization account. These charges are payable even if your account is not being used. In addition to the annual charges, you need to pay custodian and transaction fees. If you hold a single account, you will have to incur only the opening charges.
Account opening requirements
You must submit an identity proof and a residential address proof at the time of opening a dematerialization account. To know about which documents are accepted as valid proofs, it is recommended you check the service provider’s website.
Operating the account
When your dematerialization account is opened, you will receive the customer ID and password. You may log in using these credentials. To execute the trades, you will need the demat account, which is often opened with the same service provider. Your bank account is then debited or credited with the relevant amount.
Several service providers offer a three-in-one account, which makes the entire process of online trading simple and quick. However, before you make a decision, it is important you take the time to conduct a research on different service providers. You must check their reliability and reputation by reading customer feedback and comments to make an informed decision.
