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A Demat account can hold your securities, such as share certificates or other documents electronically. A Trading account can be used for buying and selling securities in the stock exchange.
A Trading account and a Demat account serve different purposes but they are closely linked. Your actual stock market activity is actually a close interplay of your Trading account and Demat accounts and your bank account.
Let's now examine the differences between them.
A Trading account records your capital market transactions over time, whereas a Demat accounts keeps the holdings of shares or other securities at a specific time. A Trading account captures the nature of your transactions over a time period, while a Demat account captures your wealth effect at one point in time.
This is logically related to the previous point. This is the main difference between Demat and Trading accounts. Because Trading account records transactions over a time period, it is always measured over that period (1 month, 3 months and 1 year). The Demat account records the ownership of securities. It is usually measured at 31 March every financial year.
Let's take a look at what happens when you order shares to be bought.
Let's say you want to purchase 100 shares of X Company for Rs. The order is confirmed by calling 910. You will then need to pre-fund the trading account up to Rs. 91,000 by 11:01 AM the next morning. The shares will be automatically credited to Demat accounts on T+2 day. This process is seamless if you're an online trader.
Let's say you sell 500 shares of Stock X at Rs.420. First, the trading engine must verify that your Demat account has sufficient shares. The 500 shares will be debited from your Demat account at T+1 day. The Rs 2,10,000 lakhs amount will be credited to your bank account at T+2 days. If you have an offline account, the Debit Instruction Slip must be presented to your broker the same day. If you have an online Demat account, and have granted Power of Attorney to the broker, this problem can be solved. The entire process is easy in this case.
This is a fascinating question. Let's say you bought shares of "X", on Monday. The Demat credit will be available on Wednesday night. This means that you cannot sell it on Thursday. What happens if the price of the item has risen by 10% since Wednesday morning? You can sell it before it reaches your Demat account. Yes. Yes, the broker will let you sell shares before they reach your Demat account. There is a possibility that the delivery may not be made on T+2 days due to a delayed delivery. Your shares will be placed in an auction and delivered to your Demat account on T+3 day. This could mean that your share sale could go wrong. This is what you risk when you sell shares not yet in your Demat account.
Yes. To hold your shares on allotment, you will only need a Demat Account if you apply for an IPO. Demat accounts will suffice if you intend to only hold the shares and not sell them. If you plan to sell these shares, however, you will need to open a Trading Account first. These shares can only be sold after your Trading account has been activated and linked to your Demat account.
If you plan to hold shares in demat format, a Demat account will only be required. If you only plan to trade in options and futures with your trading account, then a Demat account will not be required. Futures and options in India can only be settled in cash and don't result in delivery. If you plan to trade in equities, however, the Demat account must be maintained. If you intend to trade intraday equities, can you skip a Demat account? No! SEBI regulations require that you open a Demat account when you plan to trade in equities.
Not all trading account transactions will be delivered to the Demat account. Intraday equity trades and futures trades can be executed in your Trading Account, but will not affect your Demat account. You can also buy IPOs and RBI bonds directly from your Demat account, without any Demat Trading Interaction.
The Depository Participant with which you opened your Demat account is responsible for an annual maintenance fee.
An investor can open multiple Trading and Demat accounts with a single PAN. There is no limit to the number of accounts that can be opened per PAN. You might be required to pay the AMC (Annual maintenance Charge) to any DPs you have opened a Demat account.
Investors may also be charged transaction and custodian charges.
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