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
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.