What Are Demat And Trading Accounts?

Introduction

The Indian stock market has become more accessible than ever. With just a few taps on your phone, you can buy shares of companies like Reliance, TCS, or Infosys. But behind every trade lies a simple system, the Demat Account and the Trading Account.

In this guide, we’ll explain what they are, why both are needed, and how shares move from one investor to another in a completely digital format.

What Is a Demat Account?

A Demat Account (short for “Dematerialized Account”) is where your shares are stored electronically. Think of it as a digital locker for your investments, instead of holding paper share certificates, everything is maintained safely in electronic form.

Key Points About a Demat Account

It holds shares, mutual funds, ETFs, and bonds in digital format.

Managed by depositories like CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited).
You can open it with a Depository Participant (DP) usually a stockbroker or bank such as Zerodha, Upstox, Angel One, or ICICI Direct.
Each investor has a unique Demat number (like a bank account number) to identify holdings.

Example: When you buy 10 shares of Infosys, they are credited into your Demat Account, just like money is credited into your bank account.

Benefits of a Demat Account

No physical certificates, reduces risk of loss or forgery.
Instant transfer and settlement of shares.
Easy to track all holdings in one place.
Dividends and bonuses are directly credited.
Required for applying in IPOs and mutual funds.

What Is a Trading Account?

A Trading Account is your gateway to the stock exchange. It is used to buy and sell shares listed on the NSE or BSE. You can think of it as a bridge between your bank account and Demat account.

How a Trading Account Works

Whenever you place an order for example, “Buy 5 shares of Reliance at Rs 1,500 each” the trading account connects to the exchange through your broker, matches the order, and completes the transaction.

The Trading Account executes the transaction.
The Demat Account stores the shares you purchased.
The Bank Account handles the money flow.

Without a trading account, you cannot buy or sell shares online, it is the interface that interacts directly with the stock exchanges.

Features of a Trading Account

Real-time access to market prices.
Order types: market, limit, stop-loss, and bracket orders.
Portfolio management and trade history tracking.
Integration with mobile apps and desktop terminals.

Relationship Between Demat and Trading Account

Many beginners get confused between the two. In simple terms:

Feature	Demat Account	Trading Account
Purpose	Stores securities (shares, bonds, etc.)	Buys or sells shares on exchanges
Linked With	Depository (CDSL/NSDL)	Stock Exchange (NSE/BSE)
Example	Holds 100 shares of TCS	Used to place buy/sell orders for TCS
Analogy	Like your locker	Like your debit card to transact

How Shares Are Bought and Sold in India

Buying or selling shares is now a fully digital and regulated process. Here’s how it works step-by-step:

Step 1: Open 3 Accounts

Bank Account: For transferring money in and out.
Trading Account: For placing buy/sell orders.
Demat Account: For holding your purchased shares.

Step 2: Log In to Your Broker Platform

Login to your broker’s app or website (for example: Zerodha Kite, Upstox, Groww). These platforms are registered with SEBI and provide direct connectivity to stock exchanges.

Step 3: Place an Order

Choose the stock you want to buy (e.g., Reliance).
Select the type of order: Market (buy instantly at current price) or Limit (buy at a specific price).
Enter the quantity and confirm.

Step 4: Trade Execution

Your order goes to the exchange (NSE/BSE) via your broker. If matched, the transaction is executed. You’ll get a confirmation immediately.

Step 5: Settlement (T+1)

From January 2023, India follows the T+1 settlement system, which means that if you buy shares today (T), they are credited to your Demat Account by the next trading day (T+1).

Step 6: Selling Shares

To sell, simply reverse the process. The shares move from your Demat Account to the buyer’s, and the money is credited to your linked bank account after settlement.

Step 7: Charges Involved

Brokerage fees (per trade or percentage-based)
Exchange transaction charges
SEBI turnover fees
GST and stamp duty

Frequently Asked Questions (FAQ)

1. Can I open Demat and Trading Accounts in different places?

Yes. You can open a Demat Account with one Depository Participant (like HDFC Bank) and a Trading Account with another (like Zerodha). But linking them makes trading smoother.

2. Is it mandatory to have both?

Yes, for equity delivery trades you need both. You can’t store shares without a Demat account and can’t buy/sell without a trading account.

3. How much does it cost to open these accounts?

Many brokers offer free account opening. However, they charge small annual maintenance (AMC) for Demat accounts around Rs 300–Rs 700 per year.

4. Can I buy IPO shares without a Trading Account?

Yes, IPOs can be applied directly through a Demat-linked bank account via ASBA. But to sell them later, you’ll need a Trading Account.

5. Who regulates all of this?

The entire process is regulated by SEBI (Securities and Exchange Board of India), ensuring transparency and investor safety.

In Simple Words

The Demat Account stores your shares, while the Trading Account helps you buy and sell them. When you buy shares, money moves from your bank to the seller through your broker, and shares move from the seller’s Demat to yours all in less than 24 hours.