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How to buy shares using a Demat account?

Nearly 100% of the settlement in the stock market happens only in Demat form. It is important to understand how to buy and sell shares through a Demat account. You will require a Demat account and a Trading account to buy shares in the market. A Demat account is a repository of your shares. You cannot transact through your Demat account. You can only transact through your Trading account. Hence, when you buy equities, you need to execute the trade in your Trading account. On T+2 day, the shares will automatically get transmitted into your Demat account. Hence, it is mandatory to open a Demat account. This Demat account can be operated online.

Additional Read: What is Demat Account, its Meaning, Type, and Process

When a company launches an Initial Public Offering (IPO), it is not listed on the stock exchange. Therefore, you cannot buy that stock in the secondary markets. If you want the shares of that company, you have to apply for the IPO. To apply for an IPO, you only require a Demat account. Once the IPO allocation is completed, the allotted shares will be credited automatically to your Demat account. You do not need a Trading account to buy shares in an IPO. But, if you want to sell the shares post the IPO allotment, you will have to do it in the secondary market, for which you need a Trading account.

Additional Read: What is an IPO & How to apply for an IPO with a Demat Account?

Buying and selling shares in the Secondary Market

If you want to buy shares in the secondary market, you will require a Trading account with your broker. Once your buy trades are executed in the Trading account and the exchange gives the confirmation then the shares will come into your Demat account on T+2 days. The broker will transfer the shares to your Demat account if the entire amount due against the purchase is paid by you before the pay-in date. Alternatively, the broker may also hold up transferring shares into your Demat account if any dues are pending at your end. If you sell shares in the secondary market then those number of shares will get debited from your Demat account and the money will be credited to you.

Buying and selling shares on the same trading day is called Intraday Trading. Holding shares and selling them on a later trading day is called Delivery Trading.

The brokerage for Intraday Trading is less than Delivery Trading. Brokerage is calculated and deducted online in the profit or loss incurred by you. If you don’t have balance in the Trading account, then you need to replenish it to trade further.

Example:

Say you want to buy a share of X at Rupees 1000; you can inform your broker accordingly. Buy X at Rupees 1000. Quantity: 10. Even if you are operating online, you can contact the broker by dialing the toll-free number or customer care number, if you do not have access to the internet at that particular point in time.

If you want to sell an X Share at Rupees 2000, you can do so accordingly. Sell X, Quantity: 3, Price: 2000. The sale order will be processed when the share reaches that price. You can execute a stop order transaction if you want to freeze a particular transaction on account of market fluctuations.

Step-by-step Guide to Buy Shares with a Demat account

Get your PAN card

A Permanent Account Number (PAN) card is a mandatory requirement to buy shares. You will need your PAN card at multiple junctions of your trading journey. For instance, you will need it to open your Demat, Bank, and Trading account, to file your ITR, etc. If you do not have a PAN already, apply for one at the earliest.

Additional Read: Can a Demat account be opened without a PAN card?

Register with a Broker

A broker is a middleman between you and the stock markets. You cannot trade shares directly from the markets. Your stockbroker will do it for you on your behalf based on the buy/sell orders you place. Choose a broker that is trustworthy and offers great services. Typically, there are two types of brokers – full-service brokers and discount brokers. Full-service brokers offer value-added services such as investment consultancy, trading tips and assistance, and research in addition to traditional broking services. Discount brokers, on the other hand, offer only broking services and hence, are lighter on your pocket. If you are a beginner in financial markets, it is advisable to opt for full-service brokers as they give you the much-needed guidance to steer clear of risks and seize profitable market opportunities. Banks, financial institutes, brokerage firms, etc. offer brokerage services.

Additional Read: How to choose the Best Broker?

Open a Demat account and a Trading account

A prerequisite to buying shares from the secondary market is having a Demat and a Trading account. A Demat account works as an online place to safely store all your shares and other financial securities. A Trading account is a platform through which you execute your buy and sell transactions. If you want to buy shares through an IPO, you need only a Demat account. You can open these accounts online or physically visit your broker’s branch to open them. Once, you have opened both these accounts, you will receive a unique account number for each of these accounts. You will need these numbers while trading shares. These numbers help the depositories to accurately track you for debiting or crediting shares as per your trade orders placed.

Additional Read: Basics of a Trading Account That You Must Know

Additional Read: Charges and Eligibility Criteria for opening a Trading Account

Additional Read: Things to check before opening a Demat account

Link your Bank account

A Bank account with sufficient funds is needed to make online payments for the shares you purchase and to receive funds when you sell your shares and other securities. You need to link your Bank account with your Demat and Trading account so that the money to buy your shares gets directly debited from it. For instantaneous transfer of funds from your Bank account to your Trading account and vice-versa, and a seamless trading experience, you should open all these three accounts from one source only. Such accounts are called 3-in-1 accounts. Many brokers, banks, and other institutes offer this account facility.

Additional Read: What is the 3-in-1 account?

Additional Read: How to Choose Best 3-in-1 Demat & Trading Accounts in India?

Trade

With all your prerequisites in place, you are now ready to trade. You can buy shares of listed companies directly from the secondary market. If you want to buy shares of to-be-listed companies, you will have to do it through an IPO application.

Here is an example of how you can buy 5 shares of company ‘A’ from the stock markets. Let us assume you want to buy the shares at Rs. 25 each. Go to your online Trading account, and punch in the share’s purchase order when it reaches Rs. 25. Your broker will take this order forward and have it processed at the relevant stock exchange. The shares will then get credited to your Demat account, and the funds to buy them along with the brokerage costs will get debited from your Bank account. If there is a payment discrepancy from your account, your broker may hold the transfer of shares to your account. You can also set price alerts to notify you about the price movements of your desired stock. 

Conclusion

Investing and trading in the stocks markets are like child’s play these days due to the convenient and simplified online trading platforms available. The best way to have a smooth trading experience begins with selecting the right broker for you and familiarizing yourself well with the trading platform it offers. It is a pivotal aspect of your trading journey. With this in place, do not delay in opening your Demat Account and Trading Account. Remember, the earlier you invest, the more time you give your money to multiply. Happy Trading!

FAQs:

   1. Is a Demat account required for buying shares?

Yes, a Demat account is required to buy shares. But a Demat account alone is not enough to buy shares. You also need a Trading account to execute your purchase transactions from the secondary markets (stock exchanges).

Additional Read: Can I trade without a Demat Account?

    2. How can I start trading in a Demat account?

Once you have a Demat account, you must link it with your Trading account and your Bank account as a prerequisite for your trading transaction. After this is in place, you can place your buy/sell orders through your Trading account. Your broker will take this order forward and have it processed at the relevant stock exchange. The shares will then get credited to your Demat account or debited from your account depending on whether you have bought or sold shares. A corresponding debit/credit of funds will reflect in your bank account, marking the end of your trading transaction.

Additional Read: How to check my Demat account balance?

    3. How can I use a Demat account?

Your Demat account is used as storage for all your shares, bonds, Mutual Funds, and other financial securities. It also helps you monitor your investments without worrying about the hassle that physical share certificates pose. You can use your Demat account to grow your money by trading and investing in financial markets. However, to do so, you also need a Trading account.

Additional Read: Top Features & Benefits of a Demat Account

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 purposes and may not be used or considered as an offer document or solicitation of an offer to buy or sell or subscribe for securities or other financial instruments or any other product.

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