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Types of Accounts involved while investing in stocks/shares

Types of Accounts involved while investing in stocks/shares

One of the favorite investment avenues is shares/stocks. Share bazaar or stock exchange is a place where investors can buy and sell shares through a broker.Most of the share trading in the Indian stock market takes place on its two major stock exchanges: the BSE Limited (earlier known as Bombay Stock Exchange) and the National Stock Exchange of India Limited (NSE). There is also a new exchange or bourse called Metropolitan Stock Exchange of India Limited (MSE).

To start investing in the stock markets, you need 3 types of accounts.

  1. Trading Account – This is where you as an investor place buy/sell orders
  2. Demat Account – This is where you as an investor hold your shares in dematerialized
  3. Bank Account – This is where you send money for fund transfers and receive funds as well from completed

Let us look at trading and demat accounts closely.

Trading Account – This account has to be opened with a SEBI registered stockbroker. On submitting the duly filled account opening form, the necessary documentation and verification will be followed. Once done, the company will provide trading details using which you may participate in market operations. A unique trading ID is necessary for trading in stocks. They will also provide you with ID and password to operate the trading account.

Demat Account – A trading account is different from a demat account. A demat account holds shares and other types of securities. Shares purchased through a trading account are deposited into the demat account. Existing shares can also be sold and they get withdrawn from your demat account and sold through a trading account. First-time investors can think of demat account as a garage or parking space for shares. Typically, when you sign up with a stock broker, they will guide you on not only the opening of the trading account but also the demat account and linking of your bank account. A stock broker will complete the entire process for you.

How to open a Demat Account?

You can open more than one demat account in the same name with single DP (Depository Participant)/ multiple DPs as per your need. DP acts as an agent of the depository and provides services to investors.

  • No minimum balance is required to be maintained in a demat
  • You can give a one-time standing instruction to your DP to receive all the credits coming to your demat account
  • You may choose your DP based on your evaluation of their reputation, service standards, charges, comfort level, other conveniences,
  • Open the demat account in single or joint names. If the same set of joint holders hold securities in a different sequence of names, these joint holders are not required to open different demat accounts in NSDL depository system just for dematerialization of their existing shares in physical NSDL has introduced “Transposition-cum-Demat” facility to help joint holders.
  • In case of a minor, the demat account should be opened in the name of the minor and the guardian’s name should be The guardian will sign as a signatory on behalf of the minor.
  • Demat account opening procedure should typically take anywhere between few minutes (online mode) to 2/3 days (offline mode).
Dos and Don’ts of Demat Account

As an investor, you must know the following when you have a demat account.

  • Scrutinize – Go through both the transaction and holding statement that you receive .
  • Handle – Keep Delivery Instruction Slips (DIS) book issued to you Insist that the DIS numbers are pre-printed. Do not pre-sign them.
  • Mention – Always refer the details like ISIN, number of securities In case of doubt, contact DP or your broker
  • Remember – Note that the execution of Power of Attorney (PoA) is not Understand PoA importance before signing it.
  • Freeze – In case you are not transacting frequently, utilize the freezing facility provided for your demat
  • Strike Out – If there is space for multiple instructions and it is not used fully, remember to strike out the blank space for furnishing security
  • Avoid – Do not overwrite, avoid cancellations, misspellings, changing of the name and quantity of
  • Never – Do not issue demat delivery instruction slip from any other family members, friends
  • Do Not – Never sign blank Delivery instruction slip
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