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Demat And Trading Accounts: Definitions, Differences, And Documents Required To Open Such Accounts

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By Author: Nirav Singhaniya
Total Articles: 11
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For a new investor, stock market investments can be quite tricky. You can be overwhelmed by the various kinds of investment instruments in the market. You would need the help of an intermediary if not a financial advisor, to get started with your investments. The intermediary might ask you to open demat and trading accounts; this can lead to confusion because you’d believed the two to be interchangeable.

However, there are a few differences between these two types of accounts. We try to explain the meanings of and differences between demat and trading accounts. The article also entails a list of documents needed to open these accounts.

 Let’s define

A greenhorn may not be aware of the differences between trading and demat accounts. However, both the account types have essential dissimilarities over purpose and functionality. Before we list out the differences between demat and trading accounts, we will look at their respective definitions.

 What is a demat account? 

Short for dematerialised, demat accounts serve the purpose of holding share market investments in an electronic format. Your physical shares are, therefore, converted into electronic ones. You can open this account online. You can visit the office of a broking company or a bank that offers the service. You receive a unique number on opening a demat account. The next step is to settle all your trades electronically.

What is a trading account?

While a demat account allows you to hold your investments, you also need an account to conduct trading activities. Such transactions can be done through your trading account. When a company lists its stock on the share market, you, as an investor, can trade them via an electronic system. Broking firms provide such accounts. You are given a unique trading ID that grants access to carry out transactions.

 Basic differences

 General difference: Essentially, your demat account works in a way similar to your savings bank account. Here, you can hold, deposit, and withdraw shares purchased from the share market. Also, like some savings accounts, demat accounts are zero-balance accounts. They do not need you to hold securities to keep your account active. A trading account, on the other hand, works like a current bank account. It links your demat account to your actual bank account (to debit or credit money for investments made). The account can be used to buy or sell shares in the share market by making deposits and withdrawals from your demat account.

 Functional difference: The chief point of difference between trading and demat accounts pertains to their functionality. As mentioned earlier, you can hold your securities in the demat account in the electronic form. But, during a transaction, you need to purchase and sell your securities. For instance, when you need to sell securities, the securities get debited from your demat account but, the trade is conducted via your trading account. Also, you can use your demat account to change securities from the electronic to the physical format.

 The difference in charges levied: The charges levied for opening and maintaining these two types of accounts vary from one investment firm to another. You are generally charged anywhere between ₹200 and ₹1,200 for opening a demat account. You have to pay your firm an annual maintenance charge of ₹300 to ₹500. Investment companies charge ₹200 to ₹800 approximately to open a trading account, and a fee of ₹200 to ₹500 is charged for maintenance.

 Documents required to open demat and trading accounts

Three Passport size photographs.
A self-attested photocopy of your PAN Card.
One ID proof (Aadhaar, Voter’s ID, passport, driver’s license, etc.).
One address proof (Aadhaar, passport, driver’s license, etc.).
Income proof.
Photocopy of savings bank account passbook and a cancelled cheque.

 Final word: Whether you need to open a trading or demat account, you should choose your broking company based on their service. Read online reviews about the company or speak to customers when you visit the offices of the firm to open an account. You can also ask your investment broker to address your concerns.

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