The last three months saw about 28 lakh new Demat and Trading accounts being opened, and this number predominantly contains youngsters. We are now much more aware and conscious of our investment decisions. At the same time, times are also riskier, and even a few silly blunders may cost you a lot. And one such blunder might be not understanding what a Demat and trading account is.
Let us get down to the basics and start from the beginning.
What is Demat account?
Almost everyone has a bank account, which lets you deposit and withdraw cash. A De-mat account is similar to a bank account which allows you to hold your securities in an electronic form.
Say you have some physical shares, then, in that case, you can simply open a Demat account and hold them in electronic form. Thus, a Demat account offers the safety of your securities. Also, you can keep money in them or withdraw them whenever you want. In order to maintain a Demat account, you need not maintain a minimum balance or hold any stocks. You can open one even without having any stocks in your portfolio.
However, this account does not allow you to trade them. In short, it allows you to hold the securities, but you won’t be able to buy or sell them.
Types of Demat account
As you might have understood what a Demat account is, let’s quickly find out its types and varieties and know-how they differ from one another
- Regular Demat account
This is an ideal account if you are a residing Indian and want to store some of your securities or equities in electronic form. If you are interested in investing in IPOs, these accounts can be of use.
However, problems arise when you wish to sell them as you will need a trading account for the same.
Further, SEBI has brought into the picture a new regulation wherein a holder will not be required to address any maintenance charges if the holdings are less than 50,000.
- Repatriable Demat account
If you are an NRI looking for an account that allows you to transfer funds from the country of your stay into India, then Repatriable accounts are the one for you. This account allows you to transfer up to 1 million USD in a year. However, you will need an NRE bank account for opening this sort of Demat account.
Non – Resident External or NRE account is a bank account which is based on rupee denominations, opened by an NRI to facilitate the various transactions with his or her home country.
- Non- Repatriable account
This is also for those who are residing outside of India. However, unlike in the case of Repatriable accounts, the investor is barred from transacting any money from abroad. You will need to have an NRO account for opening a Non- Repatriable account.
Say, you are living abroad and wish to hold the stocks which you bought while you stayed in India then such accounts can be of use.
What is Trading Account?
As mentioned earlier, a De-mat account is only a means through which you store your securities. But if you wish to buy more or sell the already existing ones, then you will need a trading account. This can be, further, divided into the following:
- Equity and derivatives trading account
This is the most common form of account which allows you to trade in shares, futures and options. The transactions can either be made online inconvenience at your home or offline by asking your broker to make transactions on your behalf. All your transactions will be executed in T+1 day.
Further, you don’t need a Demat account if you are trading in futures and options as it expires within a particular duration. But in the case of stocks, you might need a Demat account.
- Commodity trading account
If you are someone who wants to trade in Multi commodity exchange (MCX), then you will require a commodity trading account. On the event of opening a commodity trading account, you will be able to freely transact and trade in commodity futures and options.
Even here, the transactions are fulfilled in T+1 day.
- Discount broking account
These are ideal for those transacting huge volumes of stocks. These accounts charge a lower fee and are restricted from offering any other additional services. However, the services such as call and trade option can be availed by payment of a specific fee.
As an investor, you can either open any one of the above accounts or 2-in-1. Sometimes certain bank based broking institutions offer 3-in-1 service accounts. This is an option when you open an account with a bank based broking firm. It offers hassle-free banking service along with the trading and demat account.
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