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Introduction to Demat and Trading Account

Amit: Uncle, we understood what share market is, how it works and how transaction cycle gets completed. But tell us how do we start investing in share market? I mean what is required in order to enter into share market.

Uncle: Amit and Sarvo, before you start investing in share market one need to have:

  1. Saving Account with Bank.
  2. A trading account -with the broker and
  3. A demat account – Either you choose a bank/financial institution or a stock broker who could provide you the DP services

Trading Account

Trading Account is given to the Investor while registering with broker or sub broker. Trading Account is provided with a Trading ID which is to be used for all the transactions later on.

Here this Trading account is used to buy and sell the shares. For buying the shares we need to deposit money in to trading account. After that we can use this money to buy shares. And the same account is used to sell the shares. When shares sold money will automatically be credited to the Trading Account.

Sarvajeet: How to deposit money in Trading Account?

Uncle: It is very simple. There are two options available to transfer money from our Bank account to Trading account. We can give cheque to the Broker. Later after clearing that cheque he will deposit that money in to Trading Account. And the second option is to transfer money directly from our Bank Account to Trading Account through Net Transfer option. And it should have a Gate Payment Facility with your broker. Net Transfer is very fast which just take few seconds to credit your money to the Trading Account. Net transfer facility is now available with all the banks.

Demat Account

Demat refers to a dematerialized account. Now what is dematerialization? When you buy shares you get share certificate. This means you own xxx No. of shares of a particular company. The process of converting the physical form of shares into electronic form is called dematerialization or in short DEMAT.

Amit: Why to hold share or buy share in Dematerialized form ?

 Uncle: Prior to dematerialisation, the Indian stock markets have faced several problems like delay in the transfer of certificates, forgery of certificates etc. Dematerialisation helps to overcome these problems as well as reduces the transaction time as compared to the physical segment. There were various problems like inordinate delays in the transfer of share certificates, delay in receipt of securities and inadequate infrastructure in banking and postal segments to handle a large volume of application and storage of share certificates. All these problems get eliminated if we buy share in demat form as demat shares credited to your account within 2 to 3 days after the end of the settlement. This is unlike the average 30 to 40 days taken in receiving back physical shares from the R&T Agent and sometimes with objections. Further, possibility of loss or theft of the certificates is eliminated. 

Sarvajeet: Who provides demat services?

 Uncle: Demat services are provided by banks, financial institutions and stock broking houses. The broking houses in such cases also act as DPs (depository participants) intermediating between the depositories — CDSL or NSDL and the investor.

 

Amit: Understood. Uncle, can you tell us what documents are required for opening demat and trading accounts.

Uncle: Amit and Sarvo, following documents are required

  1. Duly completed account opening form and passport size photos;
  2. Photocopy of your address proof (Passport, Driving License, Voter ID Card,Ration Card, Bank Passbook, Residence Phone Bill, Electricity Bill, Rental Agreement Insurance Policy )
  3. Photocopy of your Identity proof (PAN Card, Driving License, Passport , Voter ID, Ration Card)
  4.  Bank Account Proof – Trading
    -Bank Passbook / Statement
    -Cancelled cheque leaf (for MICR purpose)
  5. Photocopy of PAN Card
  6. Signing of the DP-investor agreement.
  7.  Photographs of the respective person of passport size.

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{ 1 comment… add one }

  • Shashank Jadon April 18, 2013, 1:26 am

    what is difference b/t demat a/c, and trading a/c………do both A/C's is compulsory for buy/sell shares.

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