How to Buy & Sell Shares in Demat Account
Most people know that you can buy and sell shares only if you have a demat account. What some don’t realise is that you also need a trading account to trade on the stock market. So let’s attempt to clear the confusion between demat account and trading account.
What is a demat account?
Demat is short for dematerialization. Some years ago, the stock exchanges stopped trading in paper share certificates. So today all shares trade in electronic demat form. When you buy and sell shares, the transactions are reflected in your demat account. However, in order to buy and sell stocks, you need a trading account. In short, to participate in the share market demat account isn’t enough, you need a trading account as well.
What is a trading account?
A stock exchange like the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) has members, known as stock brokers, and only they are allowed to trade on it. So what do non-members do? How can they buy and sell shares? Well, they can do only through a member. The stockbroker charges you a fee to transact in shares on the exchange on your behalf. This fee is called brokerage.
Since stock trading takes place electronically on the Internet, anyone with a trading account can trade on his own using a computer or mobile phone. Stockbroking firms offer trading accounts that can be used to buy and sell stocks. They also provide demat accounts. Few Banks too offer trading accounts through their securities trading arms. So you can open a 3-in-1 account so that you can carry out banking and trading activities and have a demat account at the same time. This is convenient for most investors.
The costs involved
You may have to pay account opening charges for both demat and trading accounts. Of course, many depository participants and brokers do away with such charges to make it attractive to new investors. You also need to pay annual maintenance charge and transaction charges for demat accounts. In the case of trading accounts, you have to pay brokerage as well as taxes like securities transaction tax while buying and selling shares. You have to take these costs, especially the transaction costs like brokerage, into account while opening demat and trading accounts since it will affect the returns that you make.
Demat accounts aren’t meant for just shares. Nowadays many debt instruments like bonds and debentures are issued in dematerialized form, so you will need a demat account if you want to invest in them.
Disclaimer: The contents herein mentioned are solely for informational purpose and 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.