Ready to dive into the sea of stock market investments? Make sure you have the right gear. The first thing you need to get is a demat and trading account. But given the wide array of products that are available nowadays, which option should you choose? Before you start shopping around, it may help to know the difference between demat and trading account.
Difference between demat and trading account
A trading account is used to buy and sell securities in the stock market. The demat account serves as a digital storage space for the securities you currently hold. To trade in the stock market, you must link your savings bank account to your demat and trading accounts.
When buying securities, transfer funds from your savings account to your trading account. The securities you buy will be credited to your demat account. Later, should you wish to sell them, the security certificates will be debited from your demat account. The sale proceeds can then be transferred to your savings account.
Demat and trading account options
If you are ready to take the plunge, begin your stock market journey by learning about the available account options:
- 3-in-1 account
This is the ultimate bundled plan. It provides you with an integrated trading account, demat account, and savings bank account. Everything works seamlessly.
Unwilling to apply for yet another savings account? In that case, choose the 2-in-1 option. This combines a demat account and a trading account. To start trading, you will need to link your existing savings bank account with your 2-in-1 account.
- Unbundled accounts
Another option is to get separate demat, trading, and savings bank accounts. You could get each of these separately from the same provider or different providers. Just remember to link all three accounts. Otherwise, you will not be able to transact on the stock exchanges. Once you complete the formalities, fund and security transfers should happen seamlessly.
Bundled or unbundled?
Bundled accounts are convenient. You go through the account opening process just once, and there are no account linkage formalities to worry about.
Do you already hold either a demat account or a trading account? You can hold multiple accounts if you wish to. But think about whether paying the extra fee for an account that you already have is worthwhile.
In case you possess multiple demat accounts where you are the first holder, you can link them all to a single trading account. If you have more than one trading account, they can all be linked to a single demat account as needed.
Making the right choice
Think about your needs and factor in the costs before choosing between a bundled or an unbundled product. For instance, if you are unlikely to trade extensively, a basic services demat account (BSDA) is an affordable option. The maintenance charges are lower than for a standard demat account provided the value of your holdings does not exceed Rs 2 lakh.
While you shop around for a demat and trading account, browse the range of products offered by reputed brokerages like Kotak Securities. Examine the charges applicable, trading platforms on offer, and other value-added services before making your choice.