If you’re new to stock trading, there’s a chance that you’re confused between a demat account and a trading account. A demat account is basically an account that’s used to store all of your securities such as stocks, bonds, and mutual fund units electronically. On the other hand, a trading account is an account through which you can buy and sell shares on the stock exchange (also known as the secondary market).
To put it simply, a trading account merely facilitates the purchase and sale of shares on the stock exchange, whereas a demat account allows you to store the shares that you’ve purchased. So, is it really essential for an investor to have both demat and trading accounts? If this is something that you’ve long searched for an answer for, here’s something that can help clear things out.
The answer to this question is simple. No, it is not necessary for an investor to hold both demat and trading accounts. As an investor, you can choose to just make do with a demat account alone. But, it is always advisable to possess both demat and trading accounts. Why, you ask? Here’s why.
While choosing to have just an online demat account is fine, you would be limited when it comes to investing. As a matter of fact, with just a demat account, you can only invest in Initial Public Offerings (IPOs) and mutual funds, which you can do through your bank account using a method called ASBA (Application Supported by Blocked Amount). However, you won’t be able to sell any of your investments on the stock exchange since you don’t have a trading account.
As you’ve already seen above, a trading account is the account that facilitates purchase and sale of stocks in the secondary market (i.e. the stock exchange). And so, with just a demat account, you cannot buy or sell any shares contained within it through the stock exchange. This can leave you stranded and without a way to liquidate your investments as and when you see fit. This is precisely why it is advisable to open both demat and trading accounts at the same time.
The key takeaway from this article is that although it is not necessary for an investor to have a demat and a trading account, it is always recommended to open both of them simultaneously. This way, you can ensure that the stock trading process happens in a hassle-free manner. Thinking about opening an online demat account? Reach out to Motilal Oswal right away. All it takes is just a few minutes to open a demat account online.
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