A Beginners Guide To Demat Account And Trading

Stock markets serve different purposes for different entities. Companies can float new shares or raise additional capital herein to fund their myriad business activities. Retail investors can earn higher returns by investing in stocks, mutual funds, bonds, etc, or hedge their risks by investing in derivatives herein. However, earning supernormal profits from or hedging your risks effectively in stock markets isn’t that easy, especially as a beginner. With experience and practice, you will gain mastery over the same.

But, before you embark on your stock trading and investing journey, there are a few formalities that you need to complete. The most important formality is opening trading account along with demat account. As per the SEBI mandate, it is compulsory to open Demat and trading accounts to engage in online trading in India.

Demat and trading account meaning

“Demat” is a short form of the word “Dematerialization”. Thus, a Demat account is an account that holds your physical security certificates in dematerialized form. In this context, dematerialized form simply means digital/electronic form. As a digital repository of your securities, a Demat account facilitates faster and smoother online trades.

However, a Demat account alone cannot successfully execute an online trade. It needs to be linked with your bank and trading accounts. A trading account is necessary for buying or selling securities in the secondary market. A bank account gets debited or credited with the security purchase or sale amount respectively. Similarly, the Demat account gets debited or credited with the bought or sold securities respectively.

If you do not know how to create a Demat account and a trading account, you may refer to the consecutive sections for more information on the same.

Creating Demat and trading accounts

1: You need to choose a stockbroker or Demat account service provider based on your suitability after evaluating potential brokers on various parameters like Demat AMC (Account Maintenace Charges), pricing structure, value-added services, broker type, etc.

2: You need to visit your broker’s website and fill out the Demat and trading account application forms.

3: Input basic details like name, residential address, contact details, PAN number, e-mail ID, etc.

4: After filling out the basic details, you need to enter your bank account number.

5: The next step is to choose a subscription plan. Some brokers offer tailor-made plans for novice and professional investors. If you are a beginner, you may opt for the basic plan and later upgrade yourself to advanced plans. Higher-order pricing plans facilitate derivate and margin trades.

6: Now, you need to upload scanned copies of requisite documents. Usually, you need to upload an identity proof, an address proof, a canceled bank cheque, and a passport-sized photograph. Passport, driving license, Aadhar card, election ID, etc. are some documents that serve as valid identity and address proofs.

7: The next step is IPV (In-Person Verification). A representative from the broker’s office may either physically visit your residence to verify your identity or you may be required to upload a video recording. In the video recording, you may have to read a given script loudly and clearly.

8: The last step is to affix your e-signature through an OTP sent to your Aadhar registered mobile number. However, before signing, you may read the Demat account terms and conditions well.

Now, you may re-check and submit your forms. Post submission, you will receive your Demat and Trading account numbers from the broker shortly.

Final Words

Creating a Demat account and a trading account is a simple and hassle-free process. If you keep the soft copies of supporting documents handy, the entire process is likely to get over within 10 – 15 minutes. Some brokers allow you to create both accounts for free. Moreover, choosing the right subscription plan lowers your brokerage costs significantly. In other words, pricing is the most important criterion for broker evaluation.


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