It is critical to understand the difference between a Demat Account and a Trading Account. As a new trader or investor, understanding the differences can help you open the best Demat and Trading accounts and start your wealth-building adventure.
What is a Demat Account & How does it Work?
A Demat account is an account where you can hold your shares, mutual funds, bonds, and other investments in an electronic form. To add-in, you will get a unique Demat Account number when you open a Demat Account. This will help you in dealing with your shares. Just like a bank account, a Demat Account also allows you to deposit and withdraw funds. With that, securities you can debit or credit to your Demat Account. It is not necessary that your Demat account will have securities in it. There can be zero securities as well, just like you can have zero balance in your bank accounts.
What is a Trading Account & How does it Work?
A trading account is an investment account that holds securities, cash, and other assets. It is just like any brokerage account. Through a trading account, an investor can purchase and sell securities as often as they want. However, the trade should be within the trading session. You can’t trade on the stock exchanges without a trading account. You can open an online trading account with a stockbroker or a firm. Each account has its trading ID that is mandatory to complete transactions. In addition to this, each broker has its own set of features for these accounts.
Difference Between a Demat Account & Trading Account
- The primary goal of a Demat account is to assist investors in safely storing their assets. A trading account is used to buy & sell securities.
- Simply by owning a Demat account, you gain the ability to automatically receive benefits. You will get benefits when a company or firm distributes dividends, returns, or interests. A Trading account, on the other hand, gives you access to all of the country’s stock exchanges.
- It is possible to open a Demat account without purchasing any shares or securities. It is not necessary to keep a balance in it at any time. However, this is not the case with a trading account. Funds must send to and from the bank account linked with specific securities to buy and sell them.
Demat and Trading account Charges
- Dematerialization / Rematerialization Charges – The fees charged for converting a physical share to a digital form (dematerialization) and converting digital shares to physical certificates come under these charges.
- Annual Maintenance Charge – It is a recurring annual fee associated with a Demat account and is the cost of keeping your account active.
- Brokerage Charges & Off Market Transfers – Other fees included in the brokerage charges are the fees charged by the stockbroker for the services they provide and imposed on the transactions you make in the market. These fees might be a percentage of the transaction value or a flat price per order that is not based on the transaction value. With that, Off Market transfers are the transfers made from one Demat account to another & charges implied for the same are considered under these transfers.
- Demat & trading account opening charges – The charges for opening a Demat and trading account are as follows; however, free accounts with a Demat AMC are also offered by some brokers. For example, with Bajaj Financial Securities you can open a free Demat and a trading account through its freedom pack subscription plan. In the 1st year, the Demat AMC is nil and from the next year onwards, it is Rs. 365 + GST.
Conclusion
Lastly, to sum this up, you can take advantage of the electronic solutions available to help you trade online by opening a trading account and linking it to your Demat account. Before you open an account, double-check that all of your documents are in order so that you can move through the process smoothly and quickly. If you’re new to online trading, it’s a good idea to spend some time learning about and exploring the features of the trading platform before you start trading. Ultimately, this will help you to use all of the tools at your disposal.
