Why Demat &Trading Account Essential for Success in Market?
If you are looking to get started with your trading journey, then you may often come across terms like a Demat account or a trading account. Though such terms might seem daunting they can be easily understood with the right research.
Both the Demat and trading account will be an important part of your trading journey without a doubt, so you must understand the Demat meaning and what the trading account stands for. Here, we will look at what both accounts mean and why they are necessary.
What is a Demat Account
The word ‘Demat’ is the short for ‘dematerialisation’. The main purpose of a Demat account is to hold a trader’s investments like stocks, mutual funds, derivatives, etc. in electronic form. Think of the Demat account as a bank that houses all your investments digitally, under one roof.
The main concept of the Demat account was tabled in 1996 by the National Securities Depository Limited or NSDL in India. With the Demat account to hold their investments, traders and investors no longer need to worry about paper certificates.
What is a Trading Account
The main aim of the trading account is to make buying and selling various securities easier. Trading accounts are usually linked to an investor’s bank account enabling a trader to transfer funds from a bank account when they need to buy securities.
The same rule applies when they decide to sell any security. The sales proceeds thus obtained are first sent to their trading account from where it is transferred to their bank account. Think of the trading account as a link between your Demat and your bank account.
Why Demat and Trading Accounts
Both Demat and trading accounts have changed the face of stock market trading for the better. Here are some of the main benefits that have risen from the use of these accounts:
1. Bid Goodbye to Paper Certificates:
Since the details of every investment undertaken are saved in a Demat account electronically, the need for paper certificates ceases to exist. There is no need for physical paper certificates to change hands when deals are conducted successfully. Buying and selling shares through a demat and a trading account is as convenient as transferring money online from one bank account to another.
2. Trade Hassle-Free
With the help of a trading account, investors can buy and sell shares seamlessly. Before the trading account was introduced, a paper certificate had to be arranged and only after that could a transaction be executed.
3. Less Risky:
When physical share certificates were used, the chances of theft or damage to the certificates were high. As a result, trading on the stock market was riskier. But with the establishment of the Demat account, since shares are being held electronically, such risks do not exist.
4. Access to Reports and Insights:
When you have opened your demat and trading account with the right stockbroker, you will also get access to many reports and insights about the share market. Before both these accounts were invented, investors would end up calling their stockbrokers to get such insights.
5. Invest in Several Securities:
By using just one demat and trading account, you can invest in a multitude of securities with just a few clicks. From shares and mutual funds to exchange-traded funds, derivatives, debentures, etc, you can invest in your choice of security.
Conclusion
The best part about opening an NSDL Demat account is that as soon as you have opened it, you are ready to start your trading journey. The benefits are numerous without a doubt but it is also important to keep in mind that both these accounts are just a bridge between buying and selling securities. To invest intelligently, you also need to do a fair bit of research so that you can make informed choices.