As technology soars new heights with every passing day, we use its advantages in almost every industry. The stock market trading industry has also taken the online route. To enjoy a smooth journey on this route, you should know the kind of online account you should have for investment in shares and the difference between a trading account and Demat account.
You need to have a Demat account for holding your shareholding certificates electronically while a trading account is mandatory for participating in major stock exchanges of India.
Although the purpose of both the accounts is entirely different and distinct from one another, still some investors cannot make a difference between trading account and Demat account. It is a prevailing misconception among many people given the lack of exposure to online platforms.
However, you should neither ride the same boat nor think of making a choice between trading or Demat account as both are equally important and the difference between trading account and Demat account is not worth counting here. You would not be able to perform hassle-free online trading without any of the two. Thus, you should understand the functions of both accounts and where you should open them to reap the maximum benefits.
Enjoy stock trading through your digital devices with trading and Demat accounts.
Functions of Demat Accounts
To understand the difference between trading account and Demat account, it is crucial to know the functions of each account separately. Demat is the short form of Dematerialization which is the process of converting physical shares and securities certificates into electronic form. It also performs a lot of useful tasks to help in the trading process. This is the main basis of the difference between the trading account and Demat Account.
1. Secure Shareholding Certificates
You can store all your shares, bonds, ETFs (Exchange Traded Funds), government securities, IPOs (Initial Public Offerings) as well as mutual funds units safely in your Demat Account. It eliminates the chances of physical damage to the documents.
2. Electronic Conversion
Every physical share certificate and mutual funds unit is easily converted into an electronic format using Demat Accounts through dematerialization. And you may also reconvert the same into their physical forms if the need be.
3. Shares and Securities Transfer
You can easily transfer your shares from one account to another conveniently through your Demat Account. So whether you need to gift them to your friends and family or store it in another account, it can be done easily.
4. Additional Benefits
The additional benefits include easy accessibility of account, helpful in online trading, and loan facility as well. Yes, you can show the balance of your Demat account to avail loans from the banks.
Functions of Trading Accounts
The difference between trading and the Demat account is so prominent also because the former directly deals with the purchase and sale of shares in the Indian Stock Exchanges.
1. Entry In Stock Exchanges
The SEBI (Securities and Exchange Board of India) mandates the need for trading accounts for participating in the Indian Exchanges including the BSE (Bombay Stock Exchange), NSE (National Stock Exchange), MCX (Multi Commodity Exchange), etc. You cannot trade in these without having a valid trading account.
2. Smooth And Convenient Transactions
Trading accounts offer smooth transactions in cooperation with your savings account to buy and sell shares and securities. As soon as you make a purchase, your trading account will be credited and the interlinked savings account will be debited against the same. If you are wise enough to choose the right DP, you can do this task with lightning-fast speed.
3. Customizable Trading
Depending upon the benefits and perks offered by your DP, you can customize your trading accounts by modifying your orders on-the-go, watchlists, SMS alerts, etc. This will allow you to stay ahead of your contemporaries which is important for cracking the best deals.
Find The Right Depository Participant
Now that you know the purpose and difference between trading account and Demat Account, the vital task is to recognize the right place to open the accounts. Most of the DPs offer 2-in-1 account services wherein you do not have to worry about not having any one of them. There are several banks, financial entities, discount brokerages, trading firms, etc, that serve under the NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). You must follow a few tips to contemplate which is better to pick the right one.
- Compare the services offered with the charges you will need to pay.
- Analyze the technologies used by the DPs to ensure the one you pick serves good online reading options.
- Look at the expansion and growth history of the company. The larger the firm size, the more likely it is to provide good service.
- Look out for additional benefits and perks offered on opening the accounts.
- Check out the customer service department and its records of the firm to understand the quality of service you will enjoy.
The difference between a trading account and Demat account is clear now. All you need to do is learn how to operate each with the help of the best DP in the country to not fall back. Dive into the pool of trading opportunities wearing the life jacket of the best services! The difference between a trading account and Demat account will help you to know the function of both and use them efficiently.