In India, equity investments are done through a demat account, which is a prerequisite for investors. It is through this system that shares and securities are held by investors in an electronic form. A trading account, meanwhile, provides a platform for investors to buy or sell securities on stock exchanges. The demat account is linked to a trading platform to execute trades.
What is a Demat Account?
A demat account or dematerialized account is an account to hold shares and financial securities electronically. When a demat account is opened, physical documents of shares are not required, hence allowing for the smooth settlement of trades. It is maintained by NSDL or CDSL. You can open a demat account through a Depository Participant (DP), which can be a bank, financial institution, or brokerage house.
How to Open a Demat Account?
Generally, the steps followed to open a demat account include
Choosing a Depository Participant (DP): Select a registered DP offering demat account services.
Filling out the Application Form: Fill in a duly executed demat account opening form, which is available with your DP.
Submitting KYC Documents: Submit all the necessary documents, including proof of identity, proof of address, and PAN card.
In-Person Verification: This involves physical verification by the DP or through video.
Sign the Agreement: Sign all the relevant documents, signifying acceptance of the terms and conditions.
Receipt of Client ID and Password: On approval of the application by the DP, a client ID is allotted, thereby completing the demat account opening process.
The Trading Account
A trading account allows an investor to place buy and sell orders in the stock market. It links the demat account and the bank account. Trades are executed through the trading account, and the securities are held in the demat account.
How to Open a Trading Account?
The trading account opening procedure is quite similar to the one involved in opening a demat account:
– Select a Stockbroker: Choose a SEBI-registered stockbroker offering trading services.
– Fill in the Application: Fill in the trading account opening form.
– Submit Documents: Submit KYC documents according to regulatory requirements.
– Verification Process: Undergo in-person or digital verification.
– Account Activation: After verification, the broker activates the trading account and shares login credentials.
Importance of Linking a Demat Account to Trading Platforms
In a stock trading platform, an investor must transfer securities to settle a trading order. Hence, they must link their trading and demat accounts for this purpose. The transfer of shares in or out of the demat account will not be possible and thus render the trade null in case this linking is not done.
How to Link Your Demat Account to Stock Trading Platforms?
Investors generally link their demat account with a trading account at the time of account opening. Nonetheless, in case the links for either account opening process differ or if accounts were opened separately, this can still be done manually. Here are the steps to follow:
Demat Particulars: Take down your demat account number, DP ID, and client ID.
Log In to Trading Platform: Log in to the trading platform using the credentials provided by your broker.
Account Settings: Go to the profile section or account settings on the platform.
Select Link Demat Option: Look out for an option to link or add a demat account.
Demat Account Details: Fill in the DP name, DP ID, client ID, and type of demat account (NSDL or CDSL).
Verification Documents: If required, upload the demat account statement or client master report.
Verification Status: Expect confirmation within a maximum of 48 hours after verification completion.
Receive Confirmation Notification: The platform will send a confirmation of successful linkage through email or SMS.
Conclusion
The demat and trading accounts must be opened by an investor before they trade in equity. The link considers demat accounts that help the stock trading platform in the proper execution and settlement of trades.
