Demat Account Vs Trading Account

The difference between Demat and trading account is that demat account holds the shares and securities in digital mode, while a trading account provides the interface to buy or sell shares. Despite the different role demat and trading account play,they work together to make the trading in electronic format possible.

What is Demat Account and Trading Account

If you wish to invest in stock markets, there are a plethora of factors that you should be aware of. Making money in the share market is not a gamble but is a process of systematic and scientific investments. However, the starting point for any investor is to be aware about the fundamentals of demat and trading account. As this will form the crux of your trading.

We will learn this in brief below.

Demat Account: A demat account also known as Dematerialisation account. It is simply an account which holds your financial instruments like Mutual funds, shares, bonds etc. in electronic form. Demat account is quite like the bank account. Just like in bank accounts where you store currency, in demat account you store financial securities.

Trading account: A trading account is required to conduct your stock trading activities. When a company lists the shares in the share market, trading can be initiated only through Trading account. It is used to buy/sell securities in the stock market. Once you have a Demat Account, if you want to transact in shares, you need a Trading Account. A Trading Account acts as a link between your bank account and Demat Account which allows to trade in stock markets.

The Differences between Demat Account and Trading Account:

Following are the main areas where the Demat account and Trading account differ:

  • A demat account is used to hold securities that you buy in electronic form whereas, the trading account helps to place orders in share market
  • Demat Account is provided by Depository Participant registered with the Depository. Trading Account is provided by a Stockbroker registered with the Exchange. Both are regulated by SEBI.
  • Demat Account has a unique 16-digit Demat Number which is used to identify the Demat Account holder. On the other hand, trading account will have a unique trading number, which will be used to trade in the share market.
  • The key role of a Demat Account is to store the investor’s shares whereas, the key role of Trading Account is to allow trading transactions

The functionality of a Demat Vs a Trading Account

You must be aware how stock market would work before digitization. Thousands of people would be shouting and screaming at the top of their voice to place their orders. Well, gone are those days as digitization has made everything available online. You can place orders through your trading account and store the bought securities in digital form in your Demat account, all from the comfort of your home and in a few clicks. Trading account enables you to participate in trading of other financial instruments, like Futures and Options, ETFs, etc.

The nature of the two accounts

Demat account keeps a track of all your holdings such as shares, mutual funds, ETFs etc., whereas a Trading account keeps a track of all your transactions, like buy, sell, deposits, withdrawals etc.

The role of the two accounts

Both Demat and Trading Accounts serve different purposes. The role of a Demat account is holding your securities in a digital form so that it prevents any physical damage or loss to the holdings. A trading account, however, enables a user to place the buy and sell orders on the exchange. To understand the purpose with a simple example, let us consider the scenarios of an IPO. When an IPO is launched and if you are allotted the shares, then those shares are stored in your Demat account. However, when you will book profit/loss by selling those shares you will use your trading account to place the order. Your trading account is linked to your bank account and all transactions are processed through them.

Differentiator Demat account Trading account
Definition Demat Account stores shares and other forms of securities in a digital form A trading account helps a user place buy and sell orders and enables transactions between the bank account and the exchange
Role To store shares electronically and prevent any loss or damage Trading account enables transactions on the exchange
Charges Annual maintenance and other necessary charges are collected from the investor Trading account does not have any such charges, it will involve brokerage charges on the transactions carried out

Demat and Trading Account Opening Process

To invest in share market, you need both Demat account and Trading account. Just like demat account, trading account is important for investing in the stock market.

With Bajaj Financial Securities Limited, you can open quick and paperless Demat & Trading account in less than 15 minutes.

All you need is to follow the below simple process:

  • Visit the online account opening form
  • Fill basic details like name, phone number, PAN number, etc.
  • Upload your documents- photograph, PAN card, signature, Address proof, cancelled cheque
  • Complete IPV (In-person verification) to confirm your identity
  • E-sign the documents online through Aadhaar linked phone number
  • Review the form and submit your application

Once, your above process is completed, you will be notified after account is successfully activated. You will receive the login details and account details through which you can login to your Demat & Trading account and start trading.

Fees and charges for opening Demat and Trading Account:

Opening of a Demat and trading account entails various fees and charges, some of them are stated below:

  • Demat & Trading Account Opening Charges: The Demat & Trading account opening charges are vary from broker to broker. Considering both are offered together there are no separate charges for Demat and Trading accounts. There are brokers who offer free Demat and trading account like Bajaj Financial Securities Limited and call it a Freedom pack. A user does not have to pay any amount in the first year, from the second year onwards they only pay Rs. 365+ GST for the entire year.
  • Annual maintenance Charge:It is an annual recurring for maintain your demat account. The amount differs from Depository Participant to another.
  • Brokerage Charges: Brokerage charges are the charges levied by stockbroker on the buy and sell transactions you do in the share market. It can be as per the transacted value or a flat fee per order.
  • Dematerialisation & Rematerialisation Charges:The charges that are levied on converting physical share certificates to electronic form and vice versa.
  • Off-Market Transfer: These are charges that are levied when you transfer the shares from one Demat account to another without involving the stock exchange. Users use this feature to gift stocks to their friends and family members.
  • Custodian Fees:These are charges that are levied every month depending on the number of shares held in the demat account. The standard charges are between Rs. 0.5 to Rs. 1 for each ISIN. Most DPs do not charge custodian fees as most of the companies pay this one-time charge to the DPs.

Can you open a Demat account without having a Trading account or vice versa?

Theoretically, you can have a Demat account without a trading account, however, a Demat account is of no use if you do not have a trading account along with that. The purpose of a Demat account is to store shares digitally, whereas trading account enables investors to execute buy and sell orders along with other forms of trading involved in the stock market. This is the reason that all stockbrokers offer Demat and Trading account together. With banks you get the option of a 3-in-1 account, Demat, Trading and Savings.

Discount stockbrokers like Bajaj Financial Securities Limited, make the process convenient for you with free Demat and Trading account and a hassle-free one-stop solution for all stock market related activities.

Conclusion

Demat and Trading account are two integral parts of stock market investing/trading. The overall process of stock market investing cannot be carried out digitally without Demat and Trading account. A Demat account will ensure complete safety of your stocks bought, and a trading account will facilitate the transactions. Although they are two different accounts with two different purposes altogether, an investor will never really have to go through two different processes, the integration with the help of technology is so smooth and seamless that the user experience is effortless.

One such seamless platform is BFSLTRADE app offered by Bajaj Financial Securities Limited. The app allows you to create watchlists, set alerts, check news, place swift orders and a host of other features.

The most important feature in BFSLTRADE which is a boon to any new investor is the option to choose curated stock baskets prepared by experts at PickRight. A new investor does not have to go through the struggle of spending hours on research, they can simply pick one of the baskets in IDEA section of BFSLTRADE app and build a portfolio in a click.

Why Bajaj Financial Securities Limited for Demat and Trading Account

Nowadays brokers offer you Demat & Trading Account online that you can open in a few steps. Bajaj Financial Securities Ltd. offers Free Demat & Trading Account while offering low brokerage rates. Click here to open Demat & Trading Account today.

Frequently asked questions (FAQs) on Demat vs Trading Account:

Any resident individuals with valid identity proof, address proof, PAN card and Bank a/c can open Demat & Trading a/c. NRIs can also apply for a Demat and Trading account. Along with this, partnership firms, banks, trusts, societies, corporates, etc., who belong to the category of non-individuals can also apply for a Demat and Trading account.

Yes, you can hold multiple securities in one Demat account. You can hold mutual funds, equities, government bonds, etc., in the same Demat Account.

Various stockbrokers have their own charges involved with opening of Demat and Trading account. With Bajaj Financial Securities Limited, Demat and Account opening charges are Zero. Open an account now

Yes, you need both Demat and Trading account for a seamless experience of investing and trading in the stock market online.

It is not mandatory to add a nominee while opening a Demat account, however, as per a SEBI mandate, any person opening a new Demat and Trading account as on 01stOctober, 2021, should declare the nomination or the opting out of nomination.

Yes, shares can be transferred from one Demat account to another. The process is very simple and easy online; however, you can also do it offline.

Yes, it is possible to open a joint Demat or Trading account. However, both the account holders should have valid documents as proof of address and proof of identity.

Conceptually, Demat account and Trading accounts are used for different purposes, however, the common objective of both is to make online trading possible. Demat account stores shares electronically, and Trading account allows you to place buy and sell orders.

Trading account and Demat account are required together to invest in equities in the stock market. If you trade in Futures and Options, then you can manage without a Demat account. For a seamless experience, it is recommended that you open both Demat and Trading account together.