What is a Demat Trading Account and what are its benefits?
The details of your investments are all centrally linked to one particular account. Instead of physical paper based certificates, shares and other such securities are held in electronic form. This is called a dematerialized account or a Demat account. These are government norms in India. A single account can be used for both equities like shares and debt instruments like loans.
The services of a sub-broker are offered by many banks too. The account number needs to be quoted for all transactions to enable electronic settlement of trades. To transact shares, every shareholder will have such an account.
Difference between Demat Account and Trading Account
Although there is a lot written about demat account and trading account, sometimes there could be confusion on the difference between trading account and demat account. A demat account is used for holding shares. You use a trading account to trade your financial instruments in the stock markets.
Another demat and trading account difference is that only your shares and securities information is displayed in the demat account. In the trading account, all buying and selling transaction details are displayed.
A demat account brokerage firm in India may not give you an account to link to your bank account. But with a trading account, you have to link your bank account mandatorily. This is another trading account and demat account difference to take note of.
All these differences are subtle but important to be aware of when starting to trade in stocks.
What is required to access the demat account?
A password for your account
Buying and selling of securities can be done, once you are logged in to your trading account
The securities are automatically made through the account when the transactions are confirmed and completed by the user.
What are the advantages of using a Demat account?
Simple & suitable: All securities can be viewed and managed through a single account. The bonus fixed to the investor or securities bought and sold will be straight away reflected in the account.
Electronic medium moderates risks: There is no risk of misplacing certificates, theft or fire, which is unlike physical certificates. Postal delays and loss of certificates during transit can be avoided. The risk of fake and damage are also ruled out.
No stamp duty: There is a 0.5 % payable for physical shares, which is shun here due to reduced transaction costs.
Enables easy transfer of securities: Depositary participants are the people who are given the right to hold the securities on a shareholder’s behalf. These Depositories are linked with NSDL & CDSL, which handle securities in India.
Various modes of access: This makes it likely for traders and investors to participate from anywhere.
No paperwork: Since all details are electronically available, there is reduced paperwork for shares or securities transfer and none for trading.
No restrictions on transactions: You can sell or buy even a single share. So, with no specific minimum value unlimited trading can be performed.
There are many firms and agents who offer to help with a Demat account with zero brokerage charges. So, having a Demat account is surely advantageous to take part in forex trading or investing in stocks.