Difference between Demat and trading account

A Demat account holds electronic securities, while a trading account is used to place share market orders.
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Difference between Demat and trading account
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3 mins
04 August 2024

The difference between a Demat and a trading account is that a Demat account holds the shares and securities (bonds, ETFs, mutual fund units, etc.) in digital mode, while a trading account provides the interface to buy and sell shares in the stock market. However, despite the different roles they play, Demat and trading account work together to make online trading possible.

Demat account vs trading account

A Demat account and a trading account serve distinct functions in the investment process, each crucial in its own right.

Purpose: A Demat account stores your purchased securities in an electronic format, while a trading account is used to execute buy or sell orders in the stock market.

Identification: A Demat account is identified by a unique 16-digit number, specific to the account holder. In contrast, a trading account is recognised by a distinct trading number used for conducting transactions in the market.

Key Roles: The primary function of a Demat account is to securely store an investor’s shares, while the trading account’s main role is to facilitate the buying and selling of these shares.

The functionality of Demat vs trading account

Today, you can trade shares digitally. So, when you buy a share, you do not have to worry about safekeeping physical share certificates. In other words, the shares can be stored and transferred in digital mode with a Demat account. You do not have to be physically available on the trading floor to place your buy or sell order. Instead, you can do it through your trading account using your mobile or laptop.

The nature of the two accounts

Your Demat account will show the shares and securities you are currently holding at any point in time. A trading account will show you the transactions that you carried out in the stock market.

The role of the two accounts

There are two parts to the trading process. First, you need an interface to buy and sell shares from the stock market, and next, you need to have a storage space to keep those shares. A Demat account is only a repository. It helps you take the delivery of shares when trading in equity delivery or applying for an IPO and getting the allotment of shares. However, it does not allow you to transact in the stock exchange. For that, you need a trading account.

The open trading account gets linked with your bank account. You can add money from your bank account to your trading account and vice versa. You can trade in futures and options if you only have a trading account since it does not involve taking delivery of shares. Both Demat and trading accounts perform different functions in the online trading process. Nonetheless, they are closely integrated; they make the entire trading process swift and convenient.

Can I have a Demat account without a trading account?

You can open a Demat account without a trading account. Sometimes an investor just wants to hold the shares over the long term without selling them in the near term. Such investors can store the shares in their Demat account. Also, while applying for IPO, a Demat account is necessary to take delivery of shares on the allotment. A trading account is not compulsory to apply for IPO.

Can I have a trading account without a Demat account?

You can have a trading account without a Demat account. With just a trading account, you can trade in futures and options, which do not require you to take the delivery of shares.

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Charges for Demat and trading accounts

Demat and trading account brings the convenience of share trading right to your fingertips. There is a backbone of technology and other resources responsible for maintaining the services and providing the necessary support. Consequently, some charges get levied for availing the services of Demat and trading account. The key charges associated are:

  • Demat annual maintenance charge (Demat AMC): It is an annual recurring cost associated with Demat account. It is the cost of maintaining your Demat account.
  • Demat/remat charges: The charges levied on converting a share in physical form to digital mode (Dematerialization) and converting shares in digital mode to a physical certificate (rematerialization).
  • Off-market transfer: Charges for transferring shares from one Demat account to another without involving the stock exchange. This can be done by gifting shares to a family member or transferring shares from one Demat account to the other.
  • Brokerage charges: These are the charges levied by the stockbroker for the services offered. And are imposed on the transactions you do in the share market. It can be a percent of the transacted value (charged by full-service broker) or a flat fee per order, independent of the transaction value (charged by discount broker).
  • Demat and trading account opening charge: It is the fee for opening a Demat and trading account. Some stockbrokers provide the option to open free accounts. However, Demat AMC will be applicable. For example, you can open a free* Demat & trading account with Bajaj Financial Securities through its Freedom Pack subscription plan.

Open a Demat and trading account

You will need both a Demat and trading account to invest and trade in the stock market. Bajaj Financial Securities Limited provides a quick and paperless way to open your Demat and trading account online in less than 15 minutes. You have an option to open a Demat and trading account online for free* and start trading in the share market with savings on brokerage up to 99%**. Follow the below steps to open an account:

  • Visit the online account opening form.
  • Fill in your basic details, such as name, phone number, PAN number, etc.
  • Upload your documents – photograph, PAN card, signature, proof of address, cancelled cheque.
  • Perform an in-person verification (IPV) – To confirm your identity.
  • E-sign the documents online through Aadhar linked mobile number.
  • Review and submit your application.

That’s it! Once your account is activated, you will receive the login details and details of your Demat and trading account. Without leaving the comfort of your home, you can get your own Demat and trading account and start investing in the share market.

Account opening is free for Freedom Pack, with zero annual maintenance charge (AMC) for the first year & Rs. 365+GST from the second year.

99% savings get calculated as the brokerage of Rs. 10 (approx) charged in BFSL vs brokerage of Rs. 1000 calculated at 0.10% on five buy and sell orders each of a volume of two lakh.

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Standard Disclaimer

Investments in the securities market are subject to market risk, read all related documents carefully before investing.

Research Disclaimer

Broking services offered by Bajaj Financial Securities Limited (BFSL) | Registered Office: Bajaj Auto Limited Complex , Mumbai –Pune Road Akurdi Pune 411035 | Corporate Office: Bajaj Financial Securities Ltd,1st Floor, Mantri IT Park, Tower B, Unit No 9 & 10, Viman Nagar, Pune, Maharashtra 411014| CIN: U67120PN2010PLC136026| SEBI Registration No.: INZ000218931 | BSE Cash/F&O (Member ID: 6706) | DP registration No : IN-DP-418-2019 | CDSL DP No.: 12088600 | NSDL DP No. IN304300 | AMFI Registration No.: ARN – 163403|

Research Services are offered by Bajaj Financial Securities Limited (BFSL) as Research Analyst under SEBI Regn: INH000010043. Kindly refer to www.bajajfinservsecurities.in for detailed disclaimer and risk factors

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Investment in the securities involves risks, investor should consult his own advisors/consultant to determine the merits and risks of investment.

Frequently asked questions

Do I need both - a Demat and a trading account?

To make the transactions seamless and convenient, a trading account and a Demat account are required. The Demat account is a repository of your financial securities but is not enough to trade. For transacting, you need to have a trading account with a brokerage house.

However, a trading account is sufficient if you are trading on futures and options which do not require delivery of shares. When an investor wants to hold the shares and is not interested in trading them, a Demat account is sufficient.

Who can apply for a Demat and trading account?

Regardless of age or residential status, anyone can apply for a Demat and trading account. Contrary to popular belief, age is not a criterion. When a minor investor has attained the age of 18, the depository participant may ask for know your client (KYC) form to create a new account. Essentially, your PAN card, along with the KYC form, is required to open a Demat and trading account.

Is a Demat account different from a trading account?

Yes. A Demat account is different from a trading account. A Demat account holds stocks, bonds, Sovereign gold bonds, mutual funds, and exchange traded funds (ETFs), and other securities. It has securities that were converted from physical to electronic form or recently bought from an exchange. As shares in the Demat account are in an electronic format, with stringent authentication processes, there is no risk of theft, forgery, tampering of shares. At the same time, a trading account is for buying or selling shares on the stock exchange. It has to be linked to a bank and a Demat account to trade.

What is a Demat and trading account?

A demat account holds the securities (bonds, shares, mutual funds, etc.) digitally, while a trading account is used to place orders in the share market.

Are trading account and Demat account the same?

No, a trading account and a Demat account are not the same. A trading account is used to place buy and sell orders in the stock market. It acts as an intermediary between your bank account and Demat account. On the other hand, a Demat account holds your securities in electronic form, much like a bank account holds money. To trade in the Indian securities market, both accounts are essential: the trading account for transactions and the Demat account for storing the securities.

Can I trade without a Demat account?

It is generally not possible to trade without a Demat account. A Demat account is required to hold and manage shares and securities in electronic form, which is mandatory for trading in most securities, including equities. Without a Demat account, you cannot take delivery of the shares you purchase. However, for trading in derivatives like futures and options, a Demat account is not necessary, as these transactions do not involve the delivery of actual shares.

Is a Demat account free?

No, a Demat account is not typically free. There are various charges associated with maintaining a Demat account, including account opening fees, annual maintenance charges, and transaction fees for buying or selling securities. Some depository participants (DPs) may offer promotional schemes with waived or reduced fees for a limited period. It's advisable to compare the fee structures of different DPs before opening a Demat account to ensure you find a cost-effective option suitable for your trading needs.

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