Both Demat and Trading accounts are essential for participating in the stock market, but they serve different purposes.
Demat Account:
Definition (EN):
A Demat Account (short for Dematerialized Account) is an account that holds securities such as stocks, bonds, mutual funds, and government securities in electronic form. It eliminates the need for physical certificates, offering a safer and more convenient way to store investments.
Key Features of Demat Account:
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Storage of Securities: Stores securities in an electronic format.
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Ownership Record: It keeps a record of the ownership of securities.
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Transfer of Securities: Enables the transfer of securities between Demat accounts.
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No Physical Certificates: All transactions and holdings are in electronic form, reducing the risk of physical damage or loss.
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Fees: Banks or financial institutions charge an annual maintenance fee (AMC) for maintaining the Demat account.
Trading Account:
Definition (EN):
A Trading Account is an account that allows you to buy and sell securities (such as stocks, bonds, and derivatives) in the stock market. It is linked to the Demat account, enabling the transfer of securities from the Demat account when a sale is made and vice versa when a purchase is made.
Key Features of Trading Account:
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Buy and Sell Securities: Used to buy and sell stocks, bonds, and other financial instruments in the market.
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Market Access: Provides access to stock exchanges (like NSE, BSE) for trading.
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Linked to Demat Account: It is directly linked to your Demat account for transferring securities.
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Transaction Fees: Typically, brokers charge a brokerage fee or commission for each trade.
Differences Between Demat and Trading Account:
| Feature | Demat Account | Trading Account |
|---|---|---|
| Purpose | To store securities in electronic form | To buy and sell securities in the market |
| Link | Holds securities electronically | Linked to Demat account for transactions |
| Type of Holdings | Stocks, bonds, mutual funds, etc. | Allows buying and selling of securities |
| Transactions | No transactions like buying or selling | Enables buying and selling of securities |
| Maintenance Fees | Annual maintenance fee (AMC) | Transaction fees or brokerage charges |
Example:
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If you buy shares, the shares are transferred to your Demat account.
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When you sell those shares, they are debited from your Demat account and the proceeds are credited to your Trading account.
In Summary:
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A Demat Account holds your securities.
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A Trading Account is used for buying and selling securities.
Both accounts are needed for seamless participation in the stock market.