The Key Difference Between Demat Account & Trading Account

Most new investors are often confused about the difference between demat and trading account when embarking on their stock market journey. Several newbies consider both kinds of accounts to be the same. While both a demat account and a trading account are two sides of the same coin, they have distinct functionalities. That means the purpose and role of a demat account are far different than that of a trading account.

Let's look into the main areas of difference between demat and trading account and learn how they can serve your investment needs.

Understanding A Demat Account

A demat account, also known as dematerialized account, holds and stores your financial assets electronically. Formally, stock market investors were required to save and keep physical share certificates. But these printed shares were exposed to a wide range of hazards such as forgery, theft, delays, bad deliveries etc. Today, however, with a demat account, you receive an easy and convenient way of securing your financial assets in an electronic form that eliminates the risks involved in physical share certificates.

Your demat account can store all kinds of financial instruments such as shares, bonds, exchange-traded funds, mutual funds and the like. Hence, if you're looking to invest in the stock market, you need a demat account that holds all your financial securities.

Understanding A Trading Account

A trading account allows you to conduct trading transactions on the stock exchange. It is a crucial link between your savings bank account and your demat account. So while your demat account accommodates the securities you purchase, your trading account facilitates the buying and selling of financial assets and securities on the stock market.

Each time you wish to transact, you need to do so with your trading account. Any shares or securities that you purchase through your trading account will be stored in your demat account. Similarly, when selling shares or securities, they will be debited from your demat account and the money transferred to your savings bank account.

Ideally, to have a smooth and seamless trading transactional experience, it can help to have a 3-in-1 account from a reputed, full-service brokerage that combines a savings bank account, a demat account and a trading account.

Chief areas of difference between demat account and trading account

• Functionality and operation. The first area of difference between a demat account and trading account lies in their operations or functions. A trading account is used only to transact, that is, to buy or sell shares and other financial securities on the stock exchange. Once the transaction is completed, the same is reflected in your demat account. All shares or financial assets purchased on the stock exchange through your trading account is held in your demat account.

• Costs involved. Opening and maintaining a trading account does not require maintenance costs other than brokerage fees or transactional costs when trading. However, there is an annual maintenance fee charged for your demat account. Besides, each time you sell a share, a certain percentage or amount is deducted from the demat account.

Conclusion

Before opening a demat account and trading account, select the right brokerage that has an extensive reach and dedicated customer service to assist your requirements at any time. Besides, having crucial financial support in the form of award-winning research and analysis can go a long way in empowering you to make the correct investment and trading decisions.

Disclaimer

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.