What do you mean by Demat account? Do you even understand what a trading account is? Aren’t they the same? These are the questions that may often arise in our minds. A Demat account is a type of account in which we can keep the shares in the form of electronic. We have all heard about the stock market, mutual funds, and bonds. When we buy these electronic financial assets. They are kept in the Demat account. In simple words, all the units of the mutual fund, bonds, and shares bought in the stock market, are kept in a Demat account. Selling and buying the stocks and other units of a financial asset is facilitated through the trading account. Demat account is regulated, by two organizations in India, namely National Securities Depository Limited and Central Depository Service Limited. On the other hand, a trading account is regulated by brokers.
Current account savings account RD and FD accounts are known to everyone. Almost everyone on earth has a savings account and an FD. But if we talk about demat accounts and trading accounts, a lot of people will say they are unheard of. Only, by saying the definition of Demat account and trading account, we cannot understand the differences. Let us explain the differences on a different basis, for your better understanding.
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- The difference in fees structure: the fee structure of a Demat account and a trading account is different. You tend to open a Demat account either under NSDL or CDSL. You have to maintain an AMC or account maintenance charge. But on the other hand, if you open a trading account, you have to pay the brokerage, GST, and a few other charges. The brokerage charge varies from one to another broker.
- Differences based on nature: we know the basic difference between a savings account and a current account. In a savings account, we save our money, A current account is used for a person having a high transaction with the bank, in a business all the purchases and sales, are conducted through the current account. A Demat account is like a savings account where we save the shares in Demat format, on the other hand, a trading account acts like a current account, through which buying and selling of the shares, are conducted.
- Differences based on their function: if you buy shares of a company from the share market, the share units are stored electronically in the Demat account. In India, the Demat accounts can be created, under CDSL, commonly known as Central Depository Security Limited, and NSDL, commonly called National Securities Depository Limited. On the other hand, a trading account acts as a bridge between a bank account and a Demat account. Buying and selling of the shares are done through the trading account.
- Differences based on their key role: the key role of the Demat account and trading account are polar opposite. It is the rule of a debate account to protect the company shares, units of bonds, and mutual funds. Unlike the Demat account, the role of a trading account is to carry out transactions, like buying and selling company shares, mutual funds, bonds, commodities, etc.
While going through the above points, we can easily differentiate between a Demat account and a trading account. Whether it is a primary or secondary market, a Demat account allows for the dematerialisation of financial securities, whereas a training account allows us to facilitate buying and selling of these securities.