A demat account also known as dematerialised account, is an account that allows investors to hold their purchased shares and other securities in paperless form. For buying or selling securities, investors need another account, a trading account. Thus, a trading account is used for actual transactions. One can open Demat and trading accounts with a stockbroker. this article explains the difference between the demat and trading account.
Demat Account vs Trading Account : Key Differences
|Point of Difference
|To safeguard the securities of investors.
|To provide access to buy and sell securities.
|Holding investors’ securities in digital form.
|Helping investors to place buy and sell orders on the stock exchange by linking with bank accounts.
|Similar to the savings account.
|Similar to the current account.
|Annual maintenance charge.
|No annual maintenance charge.
|Measures securities at the end of the financial year.
|Transactions are measured over a period of time.
The primary objective of a Demat account is to keep and safeguard the shares, bonds, mutual funds, exchange-traded funds, etc., bought by investors. In comparison, the trading account aims at allowing investors to trade these securities through the stock exchange.
The Demat account acts as a repository and stores investors’ securities in electronic form. However, it does not allow buying or selling securities. For that, investors need a trading account.
Investors can place buy or sell orders through their trading accounts. The trading accounts are linked with their bank accounts, from which they can add money to buy shares and transfer money received from selling shares.
For Demat accounts, investors need to pay annual maintenance charges, and some brokers may also charge opening fees. However, there are no such charges for trading accounts. Investors need to pay brokerage charges while buying or selling shares.
Demat accounts and trading accounts are different and serve different purposes. Investors having both of them can enjoy a seamless transaction experience. However, it is possible to have a Demat account without a trading account and vice versa. Thus, you can choose to have either or both of them based on your purpose.
Frequently Asked Questions
If you only want to hold shares bought through IPO and do not want to engage in trading, you may not need a trading account.
If you want to do future and option trading, where the delivery of shares is not required, you may not need a Demat account.
To hold as well as buy or sell shares, you need both, Demat and trading accounts.
Yes, you can have a trading account without a Demat account if you only want to do future and option trading, where the delivery of shares is not required.
The charges for Demat and trading accounts vary among brokers. While some of the commonly charged fees are Demat and trading account opening fees, some charge Demat annual maintenance charges, brokerage charges, etc.
Regardless of age and residential status, anyone can open a Demat and trading account. One must have a PAN card and submit a KYC form to open a Demat and trading account.