To invest in securities in a stock exchange, there are certain requirements that must be met. One of these requirements is that an investor must have a demat account and a trading account. In this article, we have tried to clarify the difference between a demat account and a trading account.
|Sense||The Demat account is an account that allows the account holder (investor) to store shares and securities electronically.||Trading account is an account through which the account holder makes an order for trading securities.|
|SEBI and NSDL approval to open account.||required||Not required|
|Transaction||The account is used to hold securities and not for transaction purposes.||The account is mainly used for securities trading purposes.|
|Annual maintenance charges||The account holder must pay the AMC charges.||Not payed.|
|Suitable for||Those who wish to invest in the stock market and store shares electronically.||Derivatives segment operators, especially those dealing in the cash segment.|
Demat Account Definition
Demat expands to dematerialization, which refers to a process of converting physical certificates into paper, of securities issued to an investor in an equal number of shares in computerized format. After the conversion of the securities, they are transferred to the investor's demat account.
In accordance with the Depositary Act of 1996, the Indian Securities and Exchange Board has made it mandatory for investors to have a Demat Account to make a transaction in the financial market. So the investor opens the account when registering with the stockbroker. There are several merits of a Demat account that are:
- Immediate credit of the issuance of bonds / rights to the shareholder's account.
- There is no risk of loss, forgery and theft.
- Low transaction cost.
- No stamp duty is paid.
Trading Account Definition
The term commercial account refers to an account that makes it easier for the investor to buy and sell securities. In this account, the securities are deposited in the investment broker for trading purposes.
The account acts as a bridge between the savings bank account and the Demat account of the account holder. Let's understand how these three accounts work: suppose you have a stock of A Ltd. in your Demat account and want to buy shares of B Ltd. So, for this purpose, you need to transfer money from your savings account to your bank account. trading account Now, you can buy shares of B Ltd. either from the stock market or from a merchant by transferring money to the seller's business account. The shares of B Ltd. are deposited in your demat account linked to your trading account.
In the same way, if you want to sell the shares of A Ltd., you must recover your shares from a demat account and transfer them to the trading account. After that, the shares are sold in the stock market and the money earned is transferred to your savings account.
Key differences between Demat and the business account
The differences between the demat account and the business account can be clearly drawn for the following reasons:
- An account that allows the account holder (investor) to store shares and securities electronically is called the Demat Account. An account through which the account holder places an order for securities trading is the Trading Account.
- To open a Demat account, prior approval by SEBI (Indian Stock Exchange Board) and NSDL (National Securities Depositories Limited) is required, which is not the case with a trading account. Therefore, the procedure to open a trading account takes less time than a demat account.
- The Demat account acts as a bank, where the securities purchased are deposited and the securities sold are withdrawn. On the other hand, the trading account is used for placing the order, for buying and selling in the secondary market.
- Once a Demat account is opened, the account holder has to pay Annual Maintenance Charges (AMC), which depend on his stockbroker. On the contrary, such charges are not paid in the business account.
- A Demat account is suitable for investors who invest in the financial market and hold securities in a dematerialized manner. Unlike the trading account, which is appropriate for those traders that carry out transactions in the derivatives segment, such as raw materials, indexes, currency futures and options, etc., especially those that operate in the cash segment.
In summary, a demat account is an account that has non-physical values, while a trading account plays an important role in the purchase and sale of securities. In a purchase transaction, the trading account removes money by saving the account, buying shares and transferring them to a demat account, and while selling shares, the account takes actions from the demat account, sells shares and transfers money to the account. savings.