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Demat vs Trading Accounts

12 Jun 2023

Amid increasing literacy in the world of financial markets coupled with the awareness that social media generates today, there is an urgent need among investors to invest in the stock market. In fact, a brand new generation of younger investors is looking to build wealth, joining the already-filled bandwagon of experienced traders in the stock markets of India. Thanks to the ever-present smartphones, trading is easy and the steps that come before it, like opening a demat account, become convenient and quick. Apps are plenty and downloading a good stock broking app is not a challenge, even for students in college seeking trading activity on the side. 

The Rise of Trading

While previously, there was a lot of effort that went into the opening of a demat account, today an app allows you to do it easily online, and from any location. To open a demat account, you merely have to go through a few clicks and you are all set to enter the world of trading and investment in the stock markets. Apart from the younger lot entering the stock market universe, you can find many seniors trading today, and those with excess capital may find this a lucrative “hobby” during their retirement. According to media reports, the amount of demat accounts that are active has doubled or more from approximately 4 crores in the month of March of 2020, to March, 2022 when it has reached about 8.97 crores. 

The simple part of trading and investing in the stock market is having a demat account ready. After that, you might just find it more challenging to start trading, but if you have some understanding of investing and trading, you can take baby steps to get the hang of things first. 

What You Require to Start Trading

No one has ever said that stock market trading was easy. However, this has not been a deterrent for several individuals to try their hand at the markets and even make profits in the bargain. Initially, to begin your trading activity, you will need a demat account. Linked to this, you will also require a trading account. Both these accounts can be opened online at any reputed financial company like a good brokerage. You should know that there are a number of ways that you can invest in the stock markets, and to diversify your portfolio, direct equity investment is not the only vehicle you may choose. You can also subscribe to any upcoming IPO, or invest in the many lucrative mutual funds available through good fund houses. 

Returning to investment in direct equity, that is, trading directly in stocks through stock exchanges, you should understand what a demat and trading account can do for your ongoing investing activity. A demat account facilitates the storage of shares that you buy. These, in contrast to physical paper certificates of holding that were prevalent in olden times, are stored in electronic format in a demat account. Your trading account which is linked with your demat account, facilitates your actual transactions in stock markets, that is, the purchase and sale of shares. It is possible to open both these accounts at reliable brokers and banks that have a demat department and broking facilities. You will have to submit your documents like the PAN Card and Aadhaar Card, plus photographs. These can be uploaded for an online demat account application. If you open a demat account physically, you can submit physical copies of your documents. Once verification is complete, you can begin your path to investment in the share markets. 

Linked Accounts

The advantage of technology gives you the benefits of conducting all your transactions online from any location. In turn, this allows you to trade easily after you do your research and adequate background checking on the stocks you wish to trade in. First, you must appropriately grasp the nature of a trading account. This is used mainly for the purpose of buying and selling different assets and securities in the markets. The NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange) are the main exchanges where the stocks for stock market trading are listed. Nonetheless, some stocks may be available for trading on either of the exchanges. 

Apart from the trading account, you must have your bank account linked to a trading account. This allows a seamless monetary flow in and out of your accounts for smooth trading activity. Typically, most brokers offer you the opportunity to open dual accounts, a demat account for free and a connected trading account. 

Start Investing

Your demat account is a pathway to your investment journey in the share markets. It is easy to invest in the primary stock market, or in the secondary stock market, based on your choice depending on your investment goals. Here is some information on primary and secondary markets so that you gain investment knowledge: 

  • The Primary Markets - In primary markets, investments are made after companies launch IPOs or initial public offerings. An IPO is launched by a private company that wishes to go public and offer its stock for trading on a stock exchange. In the case of an IPO, shares may be allotted by companies to investors, according to the availability of the shares, in amounts that investors have subscribed to. In an IPO, a sum gets blocked in your bank account linked to a trading and demat account. Once shares are allotted to you through an IPO, the amount is deducted and shares are stored in your demat account. You can start trading with these stocks within a week after they are with you. 
  • The Secondary Markets - Secondary markets are the places where stocks and shares get purchased and sold directly by traders and investors. Trading and transacting is conducted on exchanges and these are open for any individual to buy and sell shares of companies listed on the exchanges. This is where stock market trading actually happens. Once you buy shares with your linked bank account, they are automatically stored in your demat account. Similarly, if you sell shares that are already held by you, amounts are credited to your linked bank account. 

Easy Trading and Investing in India

Demat accounts hold your tradable securities in electronic formats and track the ownership of these securities. Demat accounts made their debut in 1996, and since then, many new investors have made their fruitful entry into the stock market as it is easy to open a demat account. Demat accounts have expanded security availability and by investing in the primary markets with any upcoming IPO, or the secondary markets with direct equity, a demat account makes your foray into stock trading simple. 


Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account


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