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Both Demat and Trading accounts are necessary when you invest in the capital markets.
Many new investors who joined the stock market in 2020 turned toward equities due to low fixed deposit (FD) interest rates and returns offered by debt instruments. It wasn’t a wrong choice, as the capital markets have the potential to help earn inflation-beating returns and build a substantial wealth corpus despite their volatility.
However, you need a Demat and Trading account to begin investing in the capital markets. This article will give you a detailed insight into each.
In the late 90s and early 2000s, shares were held in paper format. Technology changed that, giving birth to the concept of the ‘De-mat’ account. A demat account, short for "dematerialised account," functions as a digital repository for holding and managing securities like shares, bonds, and mutual funds in electronic format, replacing traditional paper certificates.
This account facilitates seamless and secure trading on stock exchanges, streamlining the process of buying and selling investments. It offers convenience, reduces paperwork, and enhances transparency in the Indian financial markets. Opening and maintaining a demat account is a prerequisite for participating in India's modernised and digitised investment landscape, providing you with a hassle-free way to manage your securities.
After opening a Demat account, you must open a trading account to begin trading.
A trading account is like your financial hub for buying and selling investments, such as stocks. It's a special account with a bank or a brokerage firm that enables you to carry out these transactions electronically. A trading account comes with a unique trading number that you can use to trade stocks.
You deposit money into this account, which you then use to purchase stocks when you think their prices are low and sell them when they are high. The trading account keeps a record of all your trades and helps you keep track of your gains and losses.
So, essentially, you must have three accounts to begin trading: a bank account, a depository account, and a trading partner account. Your trading account is a conduit between your bank account and your demat account, allowing you to trade securities.
You can secure access to several stock exchanges by opening an online Trading account
A Demat and a Trading account have some fundamental differences. They are:
A Demat account and a Trading account have different definitions. A Demat account is an account that stores your shares in dematerialised form. Meanwhile, a Trading account is a bridge between your Demat account and your bank account.
A Demat account serves as a depository for holding shares, whereas a Trading account provides the details of your trades. Your Trading account is also linked to your bank account, allowing you to transfer funds from one account to another.
A Demat account attracts annual charges. Brokers charge a fee for annual maintenance and brokerage services, and it is deducted from your Demat account. Although some firms may charge a nominal amount, a Trading account is generally free.
There are different rules for opening a Demat account and a Trading account. For a Demat account, you must approach a broker registered with the Securities and Exchange Board of India (SEBI) and NSDL or CDSL. The same permissions are not required while opening a Trading account.
IDFC FIRST Bank has now made provisions for customers to have a Demat and Trading account. The bank has partnered with Zerodha to make this available to their customers. You need to log into the banking app and link your savings account to the Zerodha account. Once done, you can start investing in the share market.
You can have a demat account without a trading account. A demat account primarily serves as a digital repository for holding and managing securities like shares and bonds. While a trading account is necessary for actively buying and selling these securities on stock exchanges, a demat account can be standalone, allowing you to hold investments without engaging in trading activities. This can be useful if you want to invest in securities for the long term without the intention of frequent trading.
It is possible to have a trading account without a demat account. A trading account is designed specifically for buying and selling securities like stocks and derivatives like futures and options on stock exchanges which do not require a demat account. While a demat account is typically linked to it for holding these securities in electronic form, some brokers do offer the option to open a trading account without a demat account, allowing you to trade in the short term without the need for long-term storage or management of physical share certificates.
Demat and trading accounts offer convenient investing in stock market through digital modes but, they come with a few types of charges and it's crucial for investors to understand them thoroughly. Here's a comprehensive overview of these charges:
Opening a demat and trading account with IDFC FIRST Bank online is a straightforward process that allows you to start on your investment journey effortlessly. Here's a comprehensive step-by-step guide:
Step 1: Navigate to demat and trading account section: Scroll to the demat and trading account section and click on the “Open Now” button
Step 2: Fill in your details: On the designated page, provide your personal information accurately. This typically includes your full name, date of birth, PAN (Permanent Account Number), Aadhaar number, and contact details.
Step 3: Upload required documents: Scan and upload the necessary documents, which typically comprise your PAN card, Aadhaar card, passport-sized photographs, and a cancelled cheque or bank statement to serve as proof of address. Ensure that these documents are clear and legible.
Step 4: Complete the KYC process: You may need to undergo the KYC (Know Your Customer) process, which can often be completed online by verifying your Aadhaar through OTP (One-Time Password) authentication.
Step 5: Review and confirm: Thoroughly review the information you've provided and make any necessary corrections before proceeding.
Step 6: Electronic signature: Complete the application process by electronically signing the necessary documents, as mandated by regulatory guidelines.
Step 7: Account activation: Once your application is successfully verified, IDFC FIRST Bank will activate your demat and trading accounts. You will receive confirmation along with your login credentials via email and/or SMS.
Step 8: Start trading: With your newly opened demat and trading accounts, you are now prepared to dive into the world of stock market trading and investment through an IDFC FIRST Bank demat and trading account.
A demat account, or dematerialised account, is a digital repository for holding securities like stocks and bonds in electronic form. Its primary purpose is to store and manage your investments securely, replacing the need for physical share certificates.
A trading account is essential for buying and selling securities on stock exchanges. While a demat account holds your investments, a trading account facilitates the actual trading process. You place orders through your trading account, and the demat account holds the securities once the trade is executed.
Demat account charges may include account opening fees, annual maintenance charges (AMC), transaction fees, pledge fees, debit transaction charges, and more. Trading account charges encompass brokerage fees, taxes like STT and stamp duty, exchange transaction charges, and other expenses.
Transferring securities from your demat to trading account (debit) or vice versa (credit) is a simple process. You need to provide instructions to your depository participant (DP) or broker for such transfers, specifying the quantity and type of securities. There may be transaction charges associated with these transfers.
Yes, you can link a single demat account to multiple trading accounts with different brokers. Conversely, you can have multiple demat accounts linked to a single trading account. This flexibility allows investors to choose brokers based on their trading preferences while centralising their investments in one or more demat accounts.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.