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What is the difference between Demat Account and Trading Account?

Recently I came across a new investor who was very much eager to start his stock investment. However, hardly know the difference between Trading Account and Demat Account. This is not the case with any new investors, but many of us do not understand the meaning and difference between Demat and Trading Accounts. Hence, in this post I tried to explain you about the meaning and the difference of Demat account and Trading account.

Before proceeding further, please have a look at a below image. It explains clearly how and in what way one can invest in the stock market and what are the importance of Trading and Demat Accounts.

What is difference between Demat and Trading Account

You notice that Trading Account acts as a center point in stock buying or selling activity. Whereas, Demat Account is a facility under Trading System.

What is Trading Account?

When someone tries to buy stocks, then the first requirement for him is to have a trading account. This acts like buying and selling platform. This trading account connects to a stock market, from where you buy/sell stocks. You need funds to buy stocks. Hence, you must connect your trading account with your bank account. First, you have to transfer the fund from Bank Account to Trading Account. Once the fund available in Trading Account, then one can buy stocks from the stock market. Therefore, trading account, as the name suggests, is a trading platform where you buy and sell stocks to the market.

Hence, Trading Account is an intermediary of the Stock Market, Bank Account, and Demat Account.

What is Demat Account?

When you buy something, then you must place those materials in some place. Here in the case of stock buying such storing place is called Demat Account. Whatever stocks you buy will be held in Demat Account. It is exactly like your bank locker, where you keep your valuables. Whereas, in case of Demat Account, you hold your all stocks in electronic format.

According to the Depository Act of 1996, by SEBI (Securities and Exchange Board of India), it is must for equity investors to have a Demat account, which dematerializes or converts your stocks and stores them in electronic format.

This is the reason why broking firms offer you trading account along with demat account.

How the trading takes place?

Once you open the trading account and Demat account, fist you have to transfer the fund from a bank account to the trading account. Whenever you buy the stocks, then the equal amount cash will be deducted from the trading account. In the same way, whenever you sell the stocks, then the equal amount of cash will be deposited to your trading account.

In the same way, whenever you buy the stocks, then such stocks will be deposited into your Demat Account. In addition, whenever you sell the stocks, then such sold stocks will be taken away from your Demat Account.

In simple, Trading Account acts like a connection between Demat Account and Bank Account.

Hence, to integrate all these i.e. Trading Account, Demat Account and Bank Account, Banks started to offer 3-in-1 Account. In such accounts, your banker will provide you all the three benefits. This will be convenient for traders have one point of contact for all the three accounts. However, do remember that, in some cases, banks may put you in pressure to manage the minimum balance in the savings account. In addition, I felt the brokerage structure and cost of account opening and fees will be higher side when compared to other brokers who offer only Trading and Demat Account. However, if you are looking for convenience, then pay for it and open account.

Hope the above explanation cleared your doubts about Trading Account and Demat Account.

About Basavaraj Tonagatti

Basavaraj Tonagatti is the man behind this blog. He is SEBI Registered Investment Adviser who is practicing Fee-Only Financial Planning Process and also an Independent Certified Financial Planner (CFP), engaged in blogging since 7 years. BasuNivesh blog is ranked as one among India's Top 10 Personal Finance Blog. He is not associated with any Financial product/service provider. The purpose of this blog is to "Spread personal finance awareness and make them to take informed financial decisions." Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. These should not be construed as investment advice or legal opinion."

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Reader Interactions

Comments

  1. Sonali Sharma

    January 16, 2018 at 8:44 PM

    Thanku sir for the important knowledge…..keep on giving more information about stock market…..??

    Reply
    • Basavaraj Tonagatti

      January 16, 2018 at 9:05 PM

      Sonali-Sure.

      Reply
  2. Prasanta Das

    October 27, 2017 at 7:10 PM

    i have 3-in-1 account with icici direct and sbicap securities. If i open a further trading account in say angel eye or 5paise or Upstox then is is mandatory to open a further demat account at angel eye etc ? Is it possible for mapping of demat account of SCICAP Securities or icici direct where my scrips are lying ?

    Reply
    • Basavaraj Tonagatti

      October 27, 2017 at 7:58 PM

      Prasanta-Do you need these many accounts?

      Reply
  3. Hardeep Kaur

    July 9, 2017 at 8:07 PM

    I have a Three in one account ( SB account, Demate account and Trading account) with ICICI bank Nomination is Filled in only SB account . Is nomination necessary in all accounts ?

    Reply
    • Basavaraj Tonagatti

      July 10, 2017 at 7:36 AM

      Hardeep-Yes, to ease your dependents life when you are no more.

      Reply
  4. Kamal Goyal

    April 12, 2017 at 10:09 PM

    Hi Sir !
    I’m beginner & interested in IPOs . It’s possible with only demat account .?

    Reply
    • Basavaraj Tonagatti

      April 13, 2017 at 7:37 AM

      Kamal-Yes, one Demat account is enough.

      Reply
      • Mukesh

        April 25, 2017 at 5:32 PM

        But you said “When someone tries to buy stocks, then the first requirement for him is to have a trading account”, then, will demat account be anough?

        Reply
        • Basavaraj Tonagatti

          April 25, 2017 at 5:58 PM

          Mukesh-Demat account is to hold the stocks.

          Reply
          • Mukesh

            April 25, 2017 at 6:10 PM

            But before holding, one buys the stocks from IPO, right? so one also need trading account in case of IPO?

            Reply
            • Basavaraj Tonagatti

              April 25, 2017 at 6:13 PM

              Mukesh-Trading Account and Demat Account, both are necessary.

              Reply
              • Jitendra

                September 21, 2017 at 5:12 PM

                But you say only Demat account is sufficient? Pls clarify. If I only open Demat account, then how cam I do trading (without trading account)?

                Reply
                • Basavaraj Tonagatti

                  September 21, 2017 at 6:48 PM

                  Jitendra-For investing you need both.

                  Reply
  5. Deepak

    March 21, 2017 at 4:00 PM

    Ok so to open Trading account you must have demat account along with?

    Reply
    • Basavaraj Tonagatti

      March 22, 2017 at 6:40 PM

      Deepak-Where you hold when you buy if you only have trading account??

      Reply
  6. Daven Matei Royce

    March 8, 2017 at 4:24 AM

    Is it necessary to talk to a broker or go to an broker office, whether to open an demat or trading account ? Or can i do it online without having the need to talk our go out ? Am a beginner in all this stock market world and am very much interested in trading but what am having trouble is of the type’s of account, broker, etc. Thank You

    Reply
    • Basavaraj Tonagatti

      March 8, 2017 at 2:23 PM

      Daven-You can’t open the account online as you need to submit KYC documents also require your signatures.

      Reply
  7. Suru

    February 24, 2017 at 7:05 PM

    Hi Basavaraj,
    I want to invest in IPO , I have salary account in SBI. Do I need to open trading account or demat account is enough. Also, for selling these stocks is it enough to have demat account?
    Regards
    Suru

    Reply
    • Suru

      February 24, 2017 at 7:40 PM

      Also I am planning to buy Sovereign Gold Bonds in next tranche, is it better to open demat account and for this trading account is compulsory to sell them or bonds can be rematerialised before selling?

      Reply
      • Basavaraj Tonagatti

        February 24, 2017 at 8:24 PM

        Suru-Demat account not required to hold Sovereign Gold Bonds.

        Reply
    • Basavaraj Tonagatti

      February 24, 2017 at 8:16 PM

      Suru-For holding stocks you need demat and for buying and selling stocks, you need trading account. Hence, both are necessary.

      Reply
  8. Saurabh

    January 31, 2017 at 2:23 PM

    New to trading. Some basic queries
    1) Is it possible to have Dmat account and trading account with different firms?
    2) How can I withdraw money from trading account ?

    Reply
    • Basavaraj Tonagatti

      January 31, 2017 at 8:10 PM

      Saurabh-1) YES. 2) It is the process that you have to ask your broker.

      Reply
      • Saurabh

        February 13, 2017 at 3:16 PM

        Okay. In case one opts for 2 different firms for demat and trading account (say demat with sbi and trading with zerodha), will he have to bear separate charges for 2 accounts like maintenance, brokerage etc.

        Is it better to have both accounts with same firm?

        Reply
        • Basavaraj Tonagatti

          February 13, 2017 at 6:12 PM

          Saurabh-Obviously. That is the reason its best to keep both at same platform.

          Reply
          • Suru

            February 25, 2017 at 1:07 AM

            Thank You BasavaRaj sir

            Reply
  9. Prince

    January 22, 2017 at 8:47 PM

    You’ve explained really well. Thanks a lot. 🙂

    Reply
    • Basavaraj Tonagatti

      January 23, 2017 at 10:45 AM

      Prince-Pleasure 🙂

      Reply
  10. Veera

    January 12, 2017 at 9:32 AM

    Hey,
    Tonagatti, My Question is that If I want to work with Call and Put options in NIFTY ,So it needs which one kind of account Trading Account or Demat Account ?

    Reply
    • Basavaraj Tonagatti

      January 12, 2017 at 9:44 AM

      Veera-Without demat trading account will not be opened.

      Reply
      • Veera

        January 12, 2017 at 12:13 PM

        Thanks , And you have any blog on Call and put Option, if yes then please send me link.

        Reply
        • Basavaraj Tonagatti

          January 12, 2017 at 12:27 PM

          Veera-No, I have not written anything on that.

          Reply
  11. Sagar

    January 11, 2017 at 12:32 PM

    Dear sir,
    I wanna ask that is it neccesory to have a demat account to do trading with an trading a/c. or can i do trading without it
    please suggest me.

    Reply
    • Basavaraj Tonagatti

      January 11, 2017 at 12:40 PM

      Sagar-For holding stocks (for trading or investing), demat account is necessary.

      Reply
  12. Hemant

    October 24, 2016 at 1:36 AM

    What happened about series sir…..

    Reply
    • Basavaraj Tonagatti

      October 24, 2016 at 6:14 AM

      Hemant-Which series?

      Reply
  13. P T R Gupta

    September 20, 2016 at 6:15 PM

    Do you recommend icici direct for trading? What is your opinion?

    Reply
    • Basavaraj Tonagatti

      September 20, 2016 at 7:10 PM

      Gupta-I not recommend any particular company. It is your wish to choose based on your comfort.

      Reply
  14. Prakash

    September 14, 2016 at 3:29 PM

    Sir I am new for investment in stock market but Sir as I know I need to have Dmate and trading a/c for investment in stock market then what is the better option for me to open Dmate and trading A/c,, Bank or other stock broking co, now I have SBI bank A/c… Please suggest me with proper explanation…

    Reply
    • Basavaraj Tonagatti

      September 14, 2016 at 8:25 PM

      Prakash-Refer my earlier post “Best Demat and Trading Account in India-How to chose it?“.

      Reply
  15. sahidur

    August 12, 2016 at 11:44 PM

    I am a new in this market.. I want to invest in commodity market.. What account will I open demat account or treading account? How can I purchase?

    Reply
    • Basavaraj Tonagatti

      August 13, 2016 at 10:08 AM

      Sahidur-Both required.

      Reply
  16. arun p antony

    August 4, 2016 at 6:08 PM

    Does we need to begin new bank account for start trading in share market.is there is any need for going to bank

    Reply
    • Basavaraj Tonagatti

      August 4, 2016 at 7:07 PM

      Arun-Bank account is necessary. But not the NEW one, you can open demat account with existing account. Also, you no need to visit bank for opening demat account. There are enough other demat account providers.

      Reply
  17. aishwaryaa

    July 28, 2016 at 12:47 AM

    dear sir,

    thank you for the simple and uncomplicated explaination. it has helped in clearing my confusion.
    can u please tell me if a demat account and a mutual fund account is the same thing? if not then what is a mutual fund account?

    Reply
    • Basavaraj Tonagatti

      July 28, 2016 at 9:50 AM

      Aishwaryaa-No, both are different. Demat account is to hold financial instruments in demat format (non-physical). Mutual Fund account is related to your mutual fund investment.

      Reply
  18. KIRAN

    June 22, 2016 at 1:24 PM

    CAN WE HAVE DEMAT AND TRADING ACCOUNT AT DIFFERENT BANK?

    Reply
    • Basavaraj Tonagatti

      June 22, 2016 at 1:25 PM

      Kiran-Once you buy the stocks, where you will hold it?

      Reply
  19. BHUPESH

    June 21, 2016 at 9:29 AM

    I want to invest in SIP how can i do this.

    Reply
    • Basavaraj Tonagatti

      June 21, 2016 at 10:36 AM

      Bhupesh-There are many ways. Few of them are through advisers, online platforms (like fundsindia), directly with mutual fund companies or few online platforms which offer direct plans like MF Utility and FundzIndia.

      Reply
  20. Rajen dey

    May 30, 2016 at 12:22 AM

    Sir, is it possible to buy n sell share in Demat account in same day.

    Reply
    • Basavaraj Tonagatti

      May 30, 2016 at 7:22 AM

      Rajen-Yes, but settlement will be at T+2 days.

      Reply
  21. Sri

    May 15, 2016 at 6:50 PM

    Sir,

    I am an Indian citizen who is currently residing in USA on a work permit. I have some queries and I hope you might be able to answer them for me:
    1- Am I allowed to transfer my US dollar savings to my HDFC savings account in India?
    2 – Am I allowed to invest in mutual funds of India while I reside in USA?
    3 – Am I allowed to invest in the stock market while I reside in USA

    Reply
    • Basavaraj Tonagatti

      May 16, 2016 at 10:24 AM

      Sri-First understand your residential status. If you are an NRI, then you are not allowed to operate normal savings account.

      Reply
  22. naveen

    December 11, 2015 at 2:08 PM

    hello sir.. i want to start my investing in stock market . i am new to this stuff. so i guess i have to open a demat and trading account. as of now i am planning only for a short term investment. i already have 2 working accounts in SBI. can u please suggest me a firm to open the trading account and demat account with less maintanance or do i open it in the same bank ???

    Reply
    • Basavaraj Tonagatti

      December 11, 2015 at 5:26 PM

      Naveen-If your buying is delivery based, then recently ZERODHA started NO CHARGES account. Contac them. It is the cheapest in Indian industry.

      Reply
  23. Jameel

    November 27, 2015 at 2:25 PM

    Basavaraj Tonagatti,
    Thank you for your open post on your blogs.
    Im interested in investing in mutual funds and am newbie in this area. hence, i would like to know what is required for investing in mutual funds. currently i hold valid bank account – salaried account in AXIS bank, is this enough for me to start investing in Mutual funds? or do i have to have DEMAT and TRADING account for Mutual funds investing also.

    Please suggest on this.

    Thanks and Regards,
    Mohammed Jameel

    Reply
    • Basavaraj Tonagatti

      November 27, 2015 at 3:46 PM

      Jameel-You must need a bank account (which you already have), PAN Card and Address Proof. These many requirements are enough to invest in MF. Demat account is optional to hold the units in demat format, but not necessity. Trading account is not at all required.

      Reply
  24. aditya

    August 28, 2015 at 4:22 PM

    dear sir,

    I am planning to open a trading account and dmate account. could you suggest which is having less maintenance fee. I prefer to invest for long-term.

    Reply
    • Basavaraj Tonagatti

      August 28, 2015 at 8:16 PM

      Aditya-If you are long term investor, then I don’t think you have to worry much about cost.

      Reply
  25. rajesh tanwar

    July 18, 2015 at 1:06 PM

    sir i have trading account in angel swift . i have the trading id. but i dont know my dmat account. is dmat account no and trading id is same or different. if they are not same then how do i get my dmat account no

    Reply
    • Basavaraj Tonagatti

      July 18, 2015 at 7:22 PM

      Rajesh-Trading account and demat account are different. You can check the details with your broker for the same.

      Reply
  26. PRINCE NAHATA

    April 26, 2015 at 1:19 PM

    Dear Sir
    I purchased online term insurance plan of maxlife insurance opting for a cover of Rs. 1 crore on 29 march 2015.Now after completing all the formalities I am told by the company that they can offer cover of rs. 50 lakhs only .My annual income is Rs. 5 lakhs approximately.Should I go with their offer or should I look for some other company?

    Reply
    • Basavaraj Tonagatti

      April 26, 2015 at 1:21 PM

      Prince-Before accepting their offer, check why they offering you just Rs.50 lakh. Then proceed further for buying.

      Reply
  27. pranesh

    April 26, 2015 at 12:10 PM

    dear sir,
    i am confuse between eLIC term and privite insurance ex ICCI HDFC…LIC is costly but can be belive for long term. ICCI and HDFC were less premium but cant belive for long term.. suggest me which one is better LIC or others

    Reply
    • Basavaraj Tonagatti

      April 26, 2015 at 1:14 PM

      Pranesh-All are good. You can go ahead with the company which you feel affordable and suites to your need.

      Reply
      • pranesh

        April 26, 2015 at 5:40 PM

        Dear sir,
        Fr me affordable is HDFC., offering 40 years covers upto 75 yeras for Rs8000, whereas ICCI have term for only 30 years and upto 65 years at the same price. while LIC is too costly Rs.12100 fo 35 years.
        But i am seeing so many negative reviews from customers who took policy from HDFC…

        suggest pls..

        Reply
        • Basavaraj Tonagatti

          April 27, 2015 at 9:49 AM

          Pranesh-The only negative I feel about HDFC is that buying without undergoing medical examination. It is dangerous. If you opting for cover of more than Rs.1 Cr and buying this with medical examination, then I don’t have any issues with HDFC.

          Reply
  28. Kirthi Prakash

    April 24, 2015 at 2:19 PM

    Dear Basu,

    This post really helps beginners like me.

    Things I would like to know more, are, What exactly is a stock exchange? Why does the stock price change every second? etc..
    These may be too simple a topic, but many of us may not know.

    I suggest you to make a series of posts describing the basics of direct equity investing.
    Its should be something like “Direct Investing For Dummies” or “Direct Investing 101”.

    Or if you have already written about these, please point me to those posts.

    Thanks,
    Kirthi

    Reply
    • Basavaraj Tonagatti

      April 24, 2015 at 5:05 PM

      Kirthi-Thanks for suggestion. I will start this series soon.

      Reply
      • Rajiv Ahuja

        April 25, 2015 at 6:08 PM

        It will greatly enrich my knowledge if Kirthi query is answered.

        Reply
        • Basavaraj Tonagatti

          April 25, 2015 at 7:01 PM

          Rajiv-Surely I will come up with posts related to Kirthi’s interest. Thanks once again.

          Reply

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