Definition of Demat & Trading Account, their usage and differences
May 24, 2020

Definition of Demat & Trading Account, their usage and differences

Whenever you visit a brokerage house with the intent of investing in the share market, the first thing they will ask you to do is open a Demat account. Now, since you are a newbie in this domain, you might be wondering, what is Demat account what is the use of it. Well, dealing with shares in the physical form can be a cumbersome affair. They include extensive paperwork and the risk of getting involved in fraudulent equities. To make the entire process convenient and streamlined, National Securities Depository Ltd (NSDL) or the Central Depository Services Ltd (CSDL) introduced a Demat account or dematerialised account.

So, in simple words, the definition of Demat account is it helps in holding shares and securities in electronic format. It is similar to a savings bank account, where the shares purchased and sold by you gets automatically credited and debited respectively. You can even use a Demat account for holding bonds, mutual funds, and government securities. However, it is not mandatory to buy any share to maintain the ledger; that is, this account is also functional with ‘zero balance’. It facilitates seamless monitoring of equities. If you are still confused, then consider this tutorial to know everything about the Demat account meaning and its application in share trading.

How to open a Demat account?

Detailed below are the step-by-step process of opening a Demat account.

  • Select a Depository Participant (DP) with whom you wish to maintain a Demat account. Banks and stockbrokers can be your DP; they act as intermediates between central depositories and investors. You can also open Demat account online while sitting in the comfort of your house.
  • Fill the account opening Form by inputting your personal and financial details and attach a passport-sized photograph and photocopies of relevant documents. Remember, it is essential to have a PAN card for opening a Demat account (unless exempted)
  • The DP will ask you to come for verification when you need to show all the original documents to the representative of the DP. After this, you will get Demat account number or the ‘beneficiary ID’ along with password and the terms and agreement of the DP. The beneficiary ID is a mix of 16 characters to access Demat Account online.
  • You also get to know about the Demat account opening charges and the annual account maintaining expenses. (In most DPs these charges are NIL or negligible). However, you will be charged a transaction fee for buying and selling equities. Additionally, if your shares are in physical form, then you need to make a payment for converting them to digital form.
  • It is possible to link multiple Demat accounts (with different DPs) to a single PAN card.

Types of Demat Accounts

You can follow these tips while filtering suitable stocks and want to know how to invest money in the share market.

  • Regular Demat Account: Indian citizens can use this Demat account for trading in stocks.
  • Repatriable Demat Account: This Demat account is helpful for non-resident Indians (NRIs) for investing in shares. They can also use this account to transfer funds outside India, by linking the Demat account to an NRE bank account.
  • Non-Repatriable Demat Account: It is similar to Repatriable Demat account. However, NRIs cannot use this account for transferring the funds to an account outside India. They need to link the Demat account to an NRO bank account.

Documents required for opening a Demat account

Detailed below is the list of documents required for opening Demat Account

  • Proof of Income: Income Tax Return (ITR) Acknowledgement slip, Net Worth Certificate authenticated by a Chartered Accountant, salary slip, bank account statement for the past six months, Demat Account statement issued by a DP, and documents proving ownership of assets.
  • Proof of Identity: PAN card, Aadhaar card, Passport, Voter ID card, Driving License, Identity card issued by the Central or State Government, Public Sector Undertakings, or Scheduled Commercial Banks.
  • Proof of Address: PAN card, Aadhaar card, Passport, Voter ID card, Driving License, Apartment Maintenance bill, Utility bills (electricity, telephone, gas), or Bank passbook (updated not more than three months ago).

Top Demat Accounts in India

Here is a list of top 12 Demat accounts in India:

  1. SBI Demat Account (SBI Cap Securities)
  2. HDFC Demat Account (HDFC Securities)
  3. ICICI Demat Account (ICICI Direct)
  4. Zerodha Demat Account
  5. Kotak Demat Account (Kotak Securities)
  6. Sharekhan Demat Account
  7. Angel Broking Demat Account
  8. 5paisa Demat Account
  9. Upstox Demat Account
  10. Trade Smart Demat Account
  11. Motilal Oswal Demat Account
  12. India Infoline Demat Account (IIFL)

Different brokers have different demat account charges, positives and negatives. To know in details click here: Demat account charges comparison of different brokers.

What is a trading account?

Investors can utilise a trading account for buying and selling shares in the stock market, even in the same trading session. It safeguards your securities, cash or other holdings, and help in frequent dealings. In the earlier days, traders used hand signals for communicating their decisions in the stock exchange. However, with the digitalisation of the market, an electronic platform became necessary for trading in shares. A trading account filled up the void and acted as an online medium for placing orders.

Demat vs Trading account

The difference between trading account and Demat account is investors use the trading account for buying and selling shares and keep the Demat account for depositing the shares after the stock exchange dealings. When you decide to sell shares, they are taken from the Demat account. The nature of Demat vs trading account is the former acts as a savings account and latter acts as a current account (in terms of buying and selling equities).

How to close Demat or Trading account online?

Sometimes, investors open several Demat or Trading accounts to trade in shares. However, with time they may need to close inactive Demat and Trading accounts, as maintaining them incur charges. Both of them have similar process. Detailed below are the steps for closing a Demat account.

  • Download the Demat account closure form after visiting the Depository Participant’s website.
  • Before filling in the Demat account closing application, ensure that there are no shares left behind in your ledger. If you have equity in the account, then fill in the delivery instruction slip (DIS), so that the DP can transfer the share to another Demat account. Also check, whether or not, your account has a negative balance. It may pose challenges in the closing of the book.
  • Duly fill the Demat account closure form after furnishing the reason for taking this step.
  • If the Demat account is in the names of more than one holder, then all the account owners should sign the closure application in the presence of a Depository Participant (DP) representative.
  • Submit the closure form along with the ID, KYC details to the nearest branch or the head office. It usually takes seven to ten working days for the closure of a Demat Account.

Frequently Asked Questions

1. How to login Demat account?

Most Demat Accounts have similar login process. For example if you wish to login in SBI Cap Securities, then click on the ‘Trade Login’ option and enter your Client code, Password & Pan Card Number. After this, you can click on the ‘Sign In’ tab to login to your Demat account webpage.

2. Is Demat account required for mutual funds?

No, a Demat account is not mandatory for investing in mutual funds. However, considering the numerous benefits of availing this system, it is better to open an account with a SEBI registered broker. It will help you in holding shares, mutual funds, bonds, and other investments in electronic format.

3. Can I have two Demat accounts?

Yes, you can have two Demat accounts with different Depository Participants or brokers linked to a single PAN card.

4. Can I have my Aadhar card link with the Demat account?

Yes, it is possible to get your Aadhar card linked with the Demat account. You need to visit the NSDL website and click on the ‘Link Aadhaar with Demat Account’ option. After this, you will be guided through the linking process.

5. Can I open a Demat account for gold ETF?

A gold ETF (exchange-traded fund) is a unique commodity ETF dealing with gold as an asset. It helps you in trading in gold in the electronic format at a price similar to the actual cost of the metal. You can invest in gold ETFs with a Demat account or a Trading account.

6. Which are the best Demat accounts for mutual funds?

HDFC Demat Account, Kotak Demat Account, SBI Demat Account, and Sharekhan Demat Account are some of the best Demat accounts in India for mutual funds.

7. What are the benefits of holding a Demat account?

The benefits of holding a Demat account are:

  • It is a convenient method of holding equities and bonds in electronic format.
  • There are minimal are chances of fraudulent activities or delay in delivery of shares.
  • Demat accounts reduce paperwork and transaction cost.

8. How long does it take to open a Demat account?

It usually takes 48 to 72 hours to open a Demat Account provided you have furnished all the required financial details and documents.

9. Can I link a Demat and Trading Account?

Yes, you can link your Demat and Trading account. Also note that you can link multiple demat accounts with one trading account.

10. What is a joint Demat account?

A joint Demat account bears more than one holder. It helps in saving the account maintaining charges. This type of account requires KYC and all supporting documents in the name of all holders.

11. Which is the best Demat Account for intraday trading in India?

5paisa Demat Account, Angel Broking Demat Account, and Zerodha Demat Accounts are best for intraday trading since they charge a flat fee of Rs 20 per transaction.

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