Demat & Trading Accounts

To participate in the stock market, investors need the right accounts. Just like you need a bank account to store and use money, you need a Demat account to hold securities and a Trading account to buy or sell them on the exchange. These accounts are the gateway to the stock market for every investor.

1) Demat Account – The Digital Locker

A Demat (Dematerialized) account is where your shares and securities are stored in electronic form. Earlier, shares were held as physical certificates, but now everything is digital.

• Purpose: Safekeeping of securities (shares, bonds, mutual funds, ETFs).
• How it works: When you buy shares, they are credited to your Demat account; when you sell, they are debited.
• Providers: Depository Participants (DPs) such as banks and brokers, linked to NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services Ltd.).
• Example: If you buy 50 shares of Infosys, they will appear in your Demat account just like money appears in your bank passbook.

2) Trading Account – The Market Gateway

A Trading account is used to place buy and sell orders in the stock exchange. It acts as the bridge between your bank account and Demat account.

• Purpose: Executes trades in shares, bonds, or derivatives.
• How it works:
  1. Add money from your bank to your trading account.
  2. Place an order (buy/sell) through the broker’s platform.
  3. On execution, shares move in/out of your Demat account.
• Example: If you want to buy 10 shares of TCS, you use your Trading account to place the order.

3) Bank Account – The Third Link

While Demat and Trading handle securities, your bank account handles cash.

• Money flows from Bank → Trading for purchases.
• Sale proceeds flow from Trading → Bank after settlement.
  This 3-in-1 link (Bank + Trading + Demat) completes the process.

4) Opening the Accounts

To open a Demat and Trading account, you need:

• KYC documents – PAN card, Aadhaar, proof of address.
• Bank account details.
• Income proof (for derivatives).
  Accounts can be opened with brokers (Zerodha, Upstox, ICICI Direct, HDFC Securities, etc.).

5) Settlement Process (T+1 Cycle)

After buying or selling shares, the transfer happens within T+1 day (Trade date + 1 working day).

• On buying, shares are credited to Demat.
• On selling, shares are debited and money credited to bank.