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Trading Account or Demat Account: What do You Need

Trading Account or Demat Account: What do You Need?

Your trading experience begins with the opening of a trading account and a demat account with your broker. It is always preferably to activate your online trading account and online demat account simultaneously so that your trading process flow can become seamless. Trading on equity requires you to open a demat account along with the trading account.

You can open a demat account after making a demat account comparison of the offerings available in the market. Let us understand the comparison and the relationship between the demat account and trading account.

Trading Account is a Flow, Demat Account is a Stock

This is a key part of the process flow that you need to understand. When you execute transactions of buying and selling of shares, then you need to do it through your trading account. But once you need to get delivery of shares or give delivery of shares, it has to be done from your demat account. Therefore demat account is more like a bank account for shares. The demat account holds your shares in custody.

Trading Account, Bank Account, Demat Account Linkage

When you trade in shares, your trading account, demat account and bank account come into one seamless link. Here is how it works. When you buy shares in your online trading account,

your bank account gets debited and then your demat account gets credited with shares on T+2 date. When you sell shares, your demat account gets debited on T+1 date and your bank account gets credited with the funds on T+2 date.

What All Can aDemat Account Hold?

Interestingly, the demat account is not only about holding shares. You can hold RBI bonds, gold bonds, index ETFs, gold ETFs, open ended mutual funds, closed ended mutual funds and even insurance policies in your demat account. This is, apart from the shares that you can anyways hold in your demat account.

What All Can I Hold in the Trading Account?

The trading account is a platform for executing transactions and not for holding assets. However, there are two things to know here. When you trade intraday (buy and sell the same day), then only trading account gets impacted; not your demat account. Similarly, when you trade in futures and options or even in currency derivatives, only your trading account gets impacted. These are contracts and not assets and therefore cannot be held in your demat account.

Do I Have to Open Demat and Trading Account Simultaneously?

Generally, brokers will open your Trading Cum Demat (TCD) account which enables you to easily trade in equities, F&O and other asset classes. However, there is no compulsion for you to open trading and demat account simultaneously. For example, if you just want to apply for an IPO then demat account alone is sufficient to receive the allotment of shares.

If you intend to just hold on to these shares, it is fine. If you want to sell these shares then you will require a trading account. Similarly, if you only intend to trade in futures and options then demat account is not required. But, if you want to trade equities (even if only for intraday), then you need a demat account.

What About Corporate Actions and How Do They Impact?

Corporate actions include benefits like dividends, rights, bonuses, stock splits etc. Normally, when there is a bonus or a split, then the important consideration is whether the shares are in your demat account on the bonus / split record date.

If the shares are held in your demat account on the record date then the bonus shares will get automatically get credited to your demat account. No further action is required from your side. In case of dividends, the same concept of record date will apply. If your bank mandate is already registered in your demat account then the dividends are automatically credited to your bank account. Else, the dividend warrant is mailed to the address registered in your demat account.

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"Prevent Unauthorized transactions in your Trading/Demat Account --> Update your mobile numbers/email IDs with your stock brokers/Depository Participant. Receive alerts/information of your transaction/all debit and other important transactions in your Trading/ Demat Account directly from Exchange/CDSL at the end of the day .......... Issued in the interest of investors." | "KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary." | "No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorize your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account." |"Investment in Securities Market/Commodity Market is subject to Market Risk. | RGESS investors kindly download New Retail Investor Certificate from link - https://www.cdslindia.com/investors/rgessverification.aspx | Dear Investor kindly update Aadhar Number with your demat account, contact your nearest branch."
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