Difference Between Demat and Trading Account
Stock market investment is a great way for a subsidiary source of income and can also be a primary source of income. It can also generate long-term wealth for you and your family. We need to understand the difference between the two types of account which are required to trade / invest in the stock market.
Demat Account and trading accounts are fundamentally different account albeit part of the stock trading chain. Let’s understand the differences.
What is a Demat Account?
The Demat account is like a bank’s saving account. It allows you to hold your financial instruments in electronic format hence it is taken from the word – Dematerialized. Among the benefits the primary ones are it saves the physical documents from delays, thefts, forgery, etc. You can hold all kinds of instruments like mutual funds, Exchange-Traded Funds (ETFs) shares and bonds, etc. Demat is mandatory if you’d like to invest in the stock market as an investor
What is a Trading Account?
A Trading account is like a bank’s current account. It acts as the link between the Demat and Bank account. Trading account is where the buying and selling of shares/securities actually happens. Trading retrieves the shares from the Demat account once you give a sell order and sell them in the stock market. Since all of this is electronic it happens so fast we barely even notice it, however, old timers in the stock market will give some indication as to how cumbersome trading was in the earlier days.
The below table will explain the difference succinctly,
Demat Account
Role – The Demat Account is used to hold the securites. The transactions are not part of the Demat Account
Functionality – Demat short for Dematerialized Securities allows investors to hold their physical shares in electronic form
Nature – The Demat Account is like a saving bank account and is for the purpose of holding the securities
Suitable for – Demat account is suitable for investors who would like to take delivery of their stocks and hold them for a long period of time.
Approval of SEBI and NSDL – Mandatory
Annual Maintenance Charges (AMC) – Yes
Trading Account
Role – The Trading account is used for buying and selling securities
Functionality – Trading account allows to place orders for trading in securities
Nature – Trading account is like current bank account and sells securities by withdrawing from the Demat account.
Suitable for – Trading account is suitable for traders for intraday trading or for transaction over a short period of time.
Approval of SEBI and NSDL – Not required
Annual Maintenance Charges (AMC) – AMC charges are not applicable but the investor has to pay brokerage and statutory charges like GST, STT, turnover tax, stamp duty, and exchange charges.
How to open Demat or Trading account?
The procedure for opening either account is not very different. You just have to mention it to your broker. Find a Stock Broker who can provide the entire registration process online and start.
Conclusion
Both accounts might seem separate from the outside but they are a necessity if you’d like to invest in the stock market.