Online trading has made the process of investing easy and quick. Online trading helps make the transfer of funds, track the securities, and invest in new stocks from anywhere. Demat and trading accounts are essential to invest in shares and transfer funds to the savings account. Even though the two accounts are linked together, the functions of Demat and the trading accounts vary. Let us take a look at the meaning of a Demat and trading account, its benefits, and its types.
What is a Demat Account?
A Demat account is an account that allows investors to hold securities electronically by dematerialising physical shares. Earlier, shares used to be in physical form as a share certificate. All the shares that a shareholder purchases are now held in the Demat account. Holding shares in electronic form is called Dematerialisation. Electronic shares make handling and trading shares much more convenient.
What is a Trading Account?
The difference between Demat and a trading account is that the former stores shares and securities in digital form and the latter is used to make transactions. Trading accounts are necessary to buy and sell securities online. All the investments held can be bought or sold with one trading account. Trading accounts are not limited to shareholdings.
Benefits of Demat and Trading account
Now that we know buying or selling shares online is not possible without a Demat and trading account, there are many advantages of electronic trading. While Demat and trading accounts are two different accounts, they are used together. The benefits of both Demat and trading account are as follows:
One point access
Dealing in shares in electronic mode means that the investments made by an investor can be kept track of with the trading and Demat account. An investor can hold a single Demat account along with a trading account with one broker. He can have a three-in-one account that gives him access to his Demat, Trading, and Savings account together. The one-point access to all the shares in his account makes keeping track of the transactions easy.
Reduces risk of loss of documents
Holding and transacting shares in electronic form helps to avoid theft, forgery or loss of the physical share certificate. Shares held in physical form can be lost or misplaced easily. So, having a digital record of shares is a much safer option.
Demat and trading accounts can be used to make foreign investments, and to buy or sell shares from anywhere in the world. If you want to globalize your investments, you can invest in US stocks from India. Any investor outside of India also can invest in shares of an Indian company.
Making a transaction with physical share certificates is a tedious process. Online transfer of shares is a quick process with minimal effort. Access to Demat and trading accounts anytime anywhere is time-saving.
No Tax Deduction at Source (TDS) on Demat securities
As an investor, every person wants to save costs and reduce tax deductions. Whenever a transaction takes place from the Demat and trading account, additional TDS on shares and securities is not deducted.
Investments are also an asset that can be used at any time by investors. An investor can not only hold and transfer shares online but loans can be taken on the shares held. Many banks provide loans on the Demat and trading account with the shares held as collateral.
In comparison to physical shares, using a digital account to transact shares is secure and convenient. Accessing shares through online mode and making a transfer is beneficial to investors in multiple ways. From opening a Demat account to transferring shares online, all the processes can be done online.
Types of Demat account
If you are a new investor and want to start investing in shares, the first step is to open a Demat account. Three types of Demat accounts available in India are as follows:
- Regular Demat account: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) provide regular Demat accounts to investors who are Indian residents. A regular-Demat account is best for investing in equity shares.
- Repatriable Demat account: This Demat account is for Non-Resident Individual (NRO) investors who want to trade securities in India. Opening a Repatriable Demat account requires a Non-Resident External (NRE) bank account.
- Non-repatriable Demat account:A Demat account is mandatory for foreign investors as well. Non-repatriable Demat account is for NRIs and can only be used to transfer funds in India. Having an NRO bank account linked to the Demat account is essential for any transactions.
To participate in the Indian stock market and become an investor, opening a Demat and trading account is a requirement. Even though both accounts have different purposes, the functionality of these accounts is linked. The steps to open a Demat and trading account are simpler for Indian residents compared to NRIs. Now that we have discussed the basics of online trading, you can get started with opening your Demat account.