The thought of investing and becoming wealthy have crossed your mind several times? If, I am not wrong you might have googled too “How to open a demat account”? You must have came across these two opening accounts simultaneously, “trading” and “demat”?
Well, not to worry! They are kinds of accounts with their respective functions. I tell you how:
Demat is a saving account that gives you the leverage to enjoy the holding shares in electronic format. They plays the role of dematerliazing your physical shares converting it into electronic format. Not only this they hold your securities like share certificates.
They also behaves like same account you hold as saving account. Demat account allows you to sell or buy stocks. This also has a feature to open account with zero shares, just the way you open bank account with zero balance.
Trading account allows you to perform stock activities.Demat and trading accounts are closely related to one another. The company listed in the stock exchange can be traded through this account again using electronic mode. This system is called trading and the account used here is trading account. Whenever you get register with a stockbroker or a company you receive a trading ID that further allows trading transactions.
Demat Account Vs. Trading Account
As you know demat account and trading account are relatively related to one another. But there are a major differences in both of them based on their functionality, nature and role of the accounts.
Functionality Of Demat And Trading Account
Demat and trading account has a specific difference on the functions they perform. Demat account acts as the book-keeping in accountancy, they keep all the securities as share certificate in digital format. You can anytime change the security from digital format to physical in a single click.While trading account works as the process doer in the investment. All tracstions debit ans credit of shares can be done through this account.
Nature of Demat and Trading Account
Trading account works handy with your bank account and demat account. The shares in the demat account when transferred to trading account is used in selling shares or viceversa. Also, the balance in your account helps in buying the shares in the digital format.On the other hand, Demat account acts as a savings account for the stock investment. It has a record of your buying and selling of stocks and also keeps the shares in digital form.
Role of Demat and Trading Account
Now that you learnt, a demat and trading account works in handy with eachother. Both has specified different roles in investing. The trading account assist you in buying shares of the company. While the money or the funding required to buy these shares are debited from the demat account and the same transaction is credited to this account.
Lets know how the selling of stock works, the choice of your stock can be selled through trading account and the amount return from it gets to the registered demat account. The profit and related transaction is now refelced to the demat account just like the above case.
Can One Have A Demat Account Without A Trading Account?
Again, if you simply want to have a hold to your shares for a long time and do not plan to sell or buy further there is no such importance of trading account. Trading account simply, allows the selling and buying of shares electronically. Not having trading account and keeping the demat active allows to have a hold of shares of the securities if you have any safely. There will be no movement in this account then. When you buy IPOs, the need of demat account comes into play but having trading account is not necessary.Let me clear the above statement, IPOs of Initial Public Offering is the shares listing by the company for the first time bascisally in the primary market for raising public revenue. If you have invested in such IPOs you now do not need to have a trading account and can perfectly be cool with a demat account working. Nevertheless, having a demat account without opening a trading account is acceptable.
Can One Have A Trading Account Without A Demat Account?
Shares, futures and options are some of the investment drive alternatives. Now coming to the query, having trading account without a demat account, can be a dilemma to solve.While dealing with a futures or options, you can have trading account without a demat account. The futures and options can be delivered through cash in India, so yeah no need of digitally assisted mode of wealth and no need of demat account. But, if you are dealing with equity you cannot have it flexible without a demat account and only having trading account. By the SEBI rule, while having equity share investment, it is mandatory to have both the demat and trading account. This is because the shares you buy or sell, the shares has to be hold kept in demat account in the digital form. For IPOs, Gold bonds and RBI Bonds you need not require a demat-trading interface.Now that you know the importance of both it is your turn to open and demat account and start investing. Here is the easy steps to start trading in demat account.
Do We Need A Demat Account For Mutual Funds?
There is no requirement of demat account for mutual fund investment. Such queries related to investing in mutual funds is trouble to many enthusiast. But you need not worry, now there are various other options available like banks and other third-parties manages and facilitates the mutual funds too.KYC compliance and bank account are the only prerequisite for starting investing in a mutual fund without demat account. Reading it throughout was quite a overwhelming task. Now you know trading and demat and their individual and combined roles. You should also get to know the charges and taxes it gets along the way of investing and opening these accounts. Good Luck!
I am currently pursuing my Bachelor's in Aerospace Engineering in my final year at the University of Petroleum and Energy Studies. I like to read books and learn new things that help me in my overall growth. I am a people person and love to know and interact with new people. I also like to visit new places and learn about its culture, food and history.