Of course, a demat account is vital if you wish to commence trading but there are trading accounts available as well. Here’s looking at the differences between these two account types.
Demat accounts are usually for the purpose of storage of actual shares invested in by you along with other securities. This account functions just like a savings bank account. Trading accounts are just like current bank accounts. They are the connection between the demat account and your actual bank account. These accounts only come into play when you are selling shares post withdrawal from the demat account. Demat accounts help you keep financial investments electronically and can also be used for security rematerialization, i.e. changing the same into physical securities. Trading accounts, on the other hand, are used for buying and selling shares or other securities. These shares will be debited from the demat account and can be sold via the trading account.
Demat accounts are not required if one is trading solely in options, futures and currencies. Trading accounts are only required for buying and selling these instruments. However, investing in shares and stocks requires both demat and trading accounts to be set up. Whenever the trading account is deployed for purchasing shares in the market, there will be a debit from the bank account and the shares will get credited to the demat account that is possessed by the customer. When shares are sold via the trading account, these will be debited from the demat account. The sale proceeds will get credited to one’s bank account thereafter.
You should remember that multiple demat accounts can be opened with just a single DP or depository participant. There is a maintenance charge imposed annually by the depository participant for demat accounts. Maintenance fees will be separately levied for all demat accounts held by you in this regard. There are also costs of transaction and custodian fees that you have to bear as well. For opening demat accounts, you will have to furnish KYC documents like your Passport/PAN Card/Aadhar. For opening a trading account, your demat account will suffice. Opening these accounts is a very simple procedure and only takes a few minutes of your time nowadays.