Do we need a Demat and Trading account to trade in the share market?
Do we need a Demat and Trading account to trade in the share market?
Yes, you do need a demat account and a trading account to trade in the stock market. This is because everything today is in a dematerialised form, that is, in the electronic form, which is the only way to buy or sell shares in the stock market.
Why do I need a Demat Account?
The meaning behind demat account is dematerialisation account. It acts as a bank that holds investments such as shares, bonds, government securities, insurance, mutual funds, and, EFTs. It removes the hassle of maintaining a physical paper. Each time you buy and sell shares, it is reflected on the Demat account.
You may open a demat account using a depository participant which could be your bank, stockbroker or a brokerage firm. The depository participant is a representative of two central depositories in India, the NSDL (National Securities Depository Limited) or CSDL (Central Depository Services Limited). The NSDL and CDSL serve as the link between the customer and the brokerage firm that provides the demat service.
What exactly is a Trading Account?
A demat account is not sufficient to do trading in the stock market. A trading account is needed to execute buying and selling of shares. The demat account acts a bank where the shares are deposited. Only members of the stock exchanges such as Bombay Stock Exchange and National Stock Exchange are allowed to open a trading account for investors to trade in the exchange.
For example, let's say you have 100 Rs and want to buy an apple from the store. The wallet acts as a demat account that holds your money and you are the trading account that buys the apple using the money. The only difference is that this whole process is done online.
63 % rise of Demat accounts post-pandemic
The pandemic had been hard on everyone, it had everyone rethink their spending habits and investments. The widespread availability of smartphones and low-cost data has pushed the boundaries for trading in the digital world. The real growth for the demat accounts were factors such as increased smartphone usage, low-cost data, easy onboarding for customers and attractive returns.
There have been over 2 million new demat accounts added since 2020. In March 2020 there were at most 40.9 million demat accounts and in 2022 there was a rise of 63% hitting an all-time high in the past 2 decades with 89.7 million accounts registered in total.
Union Finance Minister Nirmala Sitharaman praised small investors in parliamen early in March. She said the numbers of demat accounts will continue to increase however the pace will be moderate.
Is it possible to invest without a Demat Account?
It is impossible to invest in shares without a demat account since it is deemed mandatory by SEBI (Securities and Exchange Board of India) to trade in securities. However, it is possible to buy IPO shares without a demat account but you will still need a demat account to sell the shares.
Also, you can invest in mutual funds without a demat account. As an investor you may directly buy mutual funds by contacting the mutual fund company as this helps bypass the use of demat account or a broker. By contacting the mutual fund company, the investor has complete control, responsibility and accountability over their mutual fund trading.
Conclusion
In the end there is no way that you can enter the stock market to buy and sell shares without a demat or Trading account. You can start your investing journey here at 500 per crore by opening a Demat Account free of charge. Contact 500 per crore through email: info@500percrore.in