To have trading and demat account are the two requisites for trading in the Indian stock market. For those who are relatively new to investing in Indian stock market, the most common query is – why is there a need to have both these accounts.
Demat account is an account where shares are held in electronic form. A monetary deposit is made at a financial institution which can be used for investing in shares, mutual funds, bonds and derivative instruments. Holding shares in demat account eliminates the need for physical paper certificates. Demat account is offered by the banks or financial institutions in their capacity as a depository participant.
But then, to trade and invest in stocks (buy or sell stocks) a person still needs a trading account. Trading account allows one to buy or sell stocks. In other words, a trading account acts as an interface between your demat account and the stock market. It allows trading in securities with the money deposited with a financial institution or brokerage firm.
Key Benefits Of Demat & Trading Accounts:
|Demat Account||Trading Account|
|Makes allocations of shares easier and quick issuing of and ownership of securities thus increasing liquidity.||Trading accounts can also hold cash, foreign cash, securities and a number of other types of investments.|
|Helps investors avoid errors in delivery caused due to signature mismatch or postal delays or loss of certificates during transaction||Investors usually use a number of trading strategies thus having a number of trading accounts to separate their accounts in order to avoid confusion|
|Cuts risks associated with forgery, counterfeiting and loss due to fire, theft or manipulation||Trading account may be a registered for retirement savings|
|Helps avoiding stamp duty, avoid filling up of transfer formalities and obtain quick receipt of such benefits of bonuses||Helps buying and holding long-term stocks|