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Demat Account

Demat Account or Dematerialised Account is a type of electronic format used to hold shares and securities of public holdings or companies. Through Demat Account, you can hold the shares that have been converted into electronic shares from physical shares. This way, your online share trading becomes easier.

In our country, NSDL and CDSL offer free demat account services through various intermediaries, stock brokers or depository participant etc. The fee of the Demat Account varies with the stock value kept in the account, the type of Demat account you subscribe to and the terms and conditions set by the stock broker or the intermediary.

What is Demat account?

Demat Account or dematerialised account gives the facility of holding shares and securities in electronic format. When you do online trading, shares are traded; bought and sold through a Demat Account, ensuring easy and transparent trading for online traders. Demat Account hold all the trading done by an individual such as shares, securities, exchange funds, mutual funds and bonds of various companies, all under one platform.

Meaning of dematerialisation?

The process of converting physical shares into electronic format is called dematerialization, making stock trade a lot hassle-free and easily accessible from anywhere in the world. Anyone who wants to pursue online trading has to open a Demat Account first with a Depository Participant to start stock trading. The purpose of a Demat Account is to smoothen the process of trading and eradicating the requirement of an investor for holding share certificates and documents in physical format. This ensures flawless monitoring and follow-up of the held shares/holdings.

Importance of Demat Account

Demat account is a one-stop assurance of keeping your electronic shares and securities safe, secure and recorded. Due to its electronic format, there is zero risk of maintaining physical documents, forgery and theft. Stock traders can transfer their securities immediately from their Demat Account. In the case of bonus received, company mergers, consolidations etc., automatic credit of shares take place in your Demat Account. Every information related to your Demat account is flashed there you are your can access it simply by logging into it. Wherever you go, you can access your account from there without any hassle, any complication, just on your laptop of mobile phone. There is barely any cost incurred in the operation of a Demat Account as everything is electronic and things like stamp duty for transferring of shares is not required. One can expect lucrative returns as a Demat Account incites heavy trade volume by investors.

What is a Trading Account?

The stock market used to work in a physical mode earlier. Whenever a share has to be sold or bought, traders depicted it verbally or by hand gestures. When stock market replaced physical trading system by electronic system, everything started online. Buyers and sellers began to trade online. Here came the need of a trading account. The respective transactions of shares and securities are now done by this trading account. There is a unique ID by which the buying and selling of shares is performed. People now open trading account with stock market brokers of their choice and start trading.

How does it work?

Trading account acts as a link between a demat account and bank account of a trader/investor. Whenever any investor wishes to buy shares, his order is placed through his trading account. This transaction is then transferred to the stock exchange for processing of the trading. After that, the demanded/purchased number of shares is credited to the trader’s demat account and the required sum is deducted from his bank account.

In addition to it, whenever a trader wants to sell his shares, his request is made through his trading account. It further gets processed at the stock exchange and the number of shares are debited from his demat account to sell; proportionate amount of money gets credited to his bank account.

Advantages of a Trading Account

After online trading has come into effect, stock trade has become a lot more easier, hassle-free and transparent. We have collated a few advantages of a trading account here.

  • One Click trade: There are multiple stock exchanges in India like National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National Commodity and Derivatives Exchange (NCDEX), and Multi Commodity Exchange (MCX) which trade in different securities and commodities. If you have a trading account, you automatically have access to all these stock exchanges without any registration or documentation whatsoever. You are entitled to trade and create wealth just by one click.
  • Transparent & Reliable: Investment in equities and shares is all about taking a right decision at the right time, and quickly. Industry experts along with experienced market investors prepare analyzed research reports available at these trading platforms for the use of the traders. This helps in undertaking the right decision. Based on these repots, traders take full-proof investing decisions and there is an increased probability of earning better returns.
  • Notifications and Customization: Online trading platforms hire trained executives hired to provide tailor-made assistance to the clients at any point of time. Whether they seek support in handling their trading account or they are facing any technical issue; the expert advice is always there to help them get through. The traders are also notified if they set any alerts regarding buying and selling of their shares or the targets.
  • Ease of Access: Now days, trading platforms have become app-based. Therefore, it has now become easy to access the trading account with the help of laptop, smartphone and other devices. Accessing the online trade of stock market from anywhere at any time has increased the flexibility of maintaining the stock trade.
  • Flawless Transactions: As online trading can be accessed from anywhere at any time on any electronic device like mobile phones etc., it has increased transparency in the trade. The process of funds transfer, equity trading procedure has become very flawless and error-free.
Documents required to open a trading account

Trading account is an electronic account used as a bridge between a demat account and a bank account of any trader. You need to submit few documents to authenticate your account and start trading. Here is the list.

1. Proof of Income

  • Income Tax Return (ITR) copy and acknowledgement slip submitted to the IT Department during tax filing.
  • Net-Worth Certificate or a copy of Annual Bank Account statement authenticated by a Chartered Accountant.
  • Current month’s Salary Slip or Form 16.
  • Income history of last 6 months through an account statement.
  • Self-declared asset ownership document (if any).

2. Identity Proof

  • PAN Card with a clear picture.
  • AADHAAR / Voter’s ID / Driving License/ Passport.

3. Address Proof
Please furnish any of the below.

  • Indian Passport/Voter’s ID/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Residence Maintenance Bill/Life Insurance Document Copy.
  • Utility bills like telephone, electricity, LPG
  • Bank Passbook (Updated)
  • Self-declared new address given by judges of High Court and Supreme Court.
  • Address proof issued by the Bank Managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/Multinational Foreign Banks, Gazetted Officer / Notary Public, Member of Legislative Assembly, Member of Parliament.
  • Identity card issued by Central or State Government or their Departments, Statutory/Regulatory Authorities, PSUs, Commercial Banks, Public Financial Institutions, University Affiliated Colleges, Bodies like ICAI, ICWAI, ICSI, Bar Council.
Frequently Asked Questions

How a Demat account works?

The process of trading on a Demat Account is similar to physical trading, the only difference being, a Demat Account is electronic. You can place an order through your trading by linking both trading and Demat Accounts. After an order is placed, it is verified and then processed for the final buying. After this process, the bought shares are reflected in your Demat Account statement of held securities or shares. If you wish to sell your stock, an instruction note for the delivery has to be provided with stock details. The stocks are debited and cash value corresponding to the stock value is credited to the trading account.

How many types of Demat Account?

Two types of Demat Accounts are there:

1. Repatriable Demat Account-

  • In this, the funds are credited to a different/separate bank account that is also known as Non-Resident External Account (NRE Account).
  • The funds can be transferred abroad.
  • Investments done by these funds are sustained in these accounts.

2. Non-repatriable Demat account-

  • The funds are credited to a different bank account called Non Resident Ordinary Account (NRO account).
  • The funds cannot be transferred abroad.
  • Investments in these accounts are done from non-repatriable funds.

However, funds can be transferred from an NRE account to an NRO account. But there is a condition that if such transfer is made, the funds cannot be transferred back to NRE account.

Want to open a Trading Account?

If you wish to start your stock market trading, you will have to open an online trading account with the help of a stock broker. In short, you assign this stock broker to do the trade (buying and selling of stocks as per your decision).

You can follow the following steps to open a trading account:

  • Select a trustworthy broker with a good reputation of executing orders timely.
  • Take a self-survey of brokers’ fees online. Also find suitable discounts and offers given while opening the trading account.
  • You may also search for a brokerage firm and take assistance about the trading account procedure.
  • After you have finalized a broker/firm, they will send their representative to further process your trading account. You will have to fill the account opening form and KYC form. Along with this, submit the required documents (mentioned above).
  • As your documents are submitted, your personal details will be verified along with your verification over phone or in-person.
  • After your application is approved, you get the details of your trading account like the number and the user id, password to operate the account yourself or to check your account if you have hired a broker to trading on your behalf.
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