Demat vs Trading Account: What’s the Difference and Why You Need Both
Introduction
Starting your investing journey in the stock market? One of the first things you’ll hear is, “Open a Demat and Trading account.” But what exactly are these accounts, and why do you need both? In this blog, we’ll break down the differences between a Demat and Trading account, explain how each works, and guide you on how to get started.
If you’re a beginner, this guide will help you avoid confusion and take confident steps into the world of investing.
What Is a Demat Account?
A Demat account, short for Dematerialized Account, is where your shares and securities are held in electronic form. Think of it as a digital locker for all your investments—stocks, mutual funds, bonds, ETFs, etc.
Before the digital era, shares were in physical form (paper certificates). Today, thanks to Demat accounts, there’s no risk of losing, damaging, or forging your stock certificates.
Key Functions of a Demat Account:
- Holds your stocks and securities
- Automatically updates when you buy or sell shares
- Keeps records safe, secure, and paperless
What Is a Trading Account?
A Trading account is used to buy and sell shares on the stock market. It acts as a bridge between your bank account and Demat account. When you want to buy a share, the trading account places the order on the stock exchange (like NSE or BSE), and after the transaction, the shares move into your Demat account.
Key Functions of a Trading Account:
- Allows you to trade (buy/sell) on stock exchanges
- Connected to your bank and Demat account
- Executes real-time orders for stocks, derivatives, etc.
The Key Differences Between Demat and Trading Accounts
| Feature | Demat Account | Trading Account |
| Purpose | Stores securities | Buys and sells securities |
| Role | Acts like a digital locker | Acts like a transaction platform |
| Required For | Holding stocks, mutual funds | Buying/selling stocks, derivatives |
| Connection | Linked to trading and bank account | Linked to Demat and bank account |
| Managed By | Depositories (like NSDL/CDSL) | Brokers (like Zerodha, Groww) |
Why You Need Both Accounts to Invest
You can’t invest in stocks with just one of the two accounts. Here’s why:
- Buying stocks: You place an order through your Trading account, and once the purchase is done, the shares are stored in your Demat account.
- Selling stocks: When you want to sell, the shares are debited from your Demat account and sold through your Trading account. The money is then credited to your bank.
So, having both accounts is necessary to fully participate in the share market.
How to Open a Demat and Trading Account in India
Opening these accounts is simple and can be done online in just a few minutes. Here’s how:
Step 1: Choose a Broker
Popular stockbrokers in India include:
- Zerodha
- Groww
- Upstox
- Angel One
- ICICI Direct
Look for one with low fees, a good mobile app, and strong customer support.
Step 2: Complete KYC
You’ll need to provide:
- PAN Card
- Aadhaar Card
- Bank statement
- Signature photo
- Passport-size photo
Step 3: eSign and Submit
Use Aadhaar OTP verification to digitally sign the form. Once approved, your Demat and Trading accounts will be live.
Charges You Should Know
While many brokers offer free account opening, there may still be:
- Annual Maintenance Charges (AMC) for Demat account
- Brokerage Fees per trade (usually a small % or fixed amount)
- Transaction Fees (SEBI, GST, Stamp Duty, etc.)
Tip: Compare the fee structure before choosing a broker.
Example: How a Trade Happens
Let’s say you want to buy 10 shares of Infosys at Rs. 1,500 each.
- You log in to your broker’s app (e.g., Groww or Zerodha).
- Place a buy order through your Trading account.
- Your bank account is debited Rs. 15,000.
- The broker executes the trade.
- The shares are credited to your Demat account within 2 business days.
Benefits of Having a Demat and Trading Account
✅ Safe and paperless investing
✅ Real-time trading access
✅ Easy to track all your investments in one place
✅ Faster settlements (T+1 in India)
✅ Ideal for beginners and experienced investors alike
Final Thoughts
To sum it up, a Demat account stores your securities, while a Trading account allows you to buy and sell them. Together, they make investing in the stock market not only possible—but easy, efficient, and paperless.
If you’re serious about building wealth or simply want to understand how investing works, getting these accounts set up is your very first step.
So go ahead, pick a good broker, and start your investment journey with confidence!
Common FAQs
Q: Can I open just a Demat account?
Yes, but you won’t be able to buy or sell stocks without a trading account.
Q: Are Demat and Trading accounts offered by the same company?
Yes, most brokers offer both together as a bundle.
Q: Can I have multiple Demat or Trading accounts?
Yes, but you must link them to separate brokers and manage them carefully.
Q: Is it safe to invest using online platforms?
Absolutely. SEBI-regulated brokers and depositories use encrypted, secure systems.