Distinction Between Demat Account and Bank Account

There are various types of accounts associated with the stock market. Each account has its purpose, the most important being the Demat account. Along with the Demat account, a trading account and a bank account are also utilised. Knowing all the accounts will help you get a clear view of how trading works, especially the difference between a Demat account and a bank account.

What Is a Bank Account?

A bank account is a financial account generally maintained by a bank or a financial institution where all financial transactions are recorded. It is the most natural way to store all your funds as it provides security with easy access.

What Is a Demat Account?

A Demat account provides secure storage space for all securities. Various types of securities are stored in a Demat account in digital format. The word “demat” represents dematerialisation, converting all physical shares to an electronic format. The Demat account has been a boon to the stock market, as it provides a secure way of storing securities and eliminates the transfer system, leading to quick share transfers.

What Is a Trading Account?

A trading account is used to buy and sell shares in the stock market. Apart from this, it can be used to make investments and is linked to the bank and Demat accounts for the smooth transfer of funds and securities.

The Advantages of Having a Demat Account and a Bank Account

A Demat account on its own is beneficial for storing different securities, while your bank account is the perfect place to store all your funds. Both complement each other with the help of the trading account. When a share is bought, funds are deducted from the bank account, with shares being deposited into the Demat account. When a trader sells shares, they are debited from the Demat account, with the funds credited into the bank account. Together, the bank account and Demat account, coupled with the trading account, provide a seamless trading experience. You may want to check out what a collateral amount is in a Demat account, offering flexibility and potential benefits in their investment endeavours.

Demat Account vs. Bank Account

Although a Demat account and a bank account are similar, they differ from each other in the following ways:

How Does the entire process work?

A Demat account and a bank account can be used for investments. A bank provides services like fixed deposits and recurring deposits, which enable bank account holders to earn some returns in the form of interest. Banks also have multiple other investment schemes one can use to gain guaranteed returns. A Demat account will consist of your portfolio, which you have invested to create, so it grows and provides the returns you wish to have.

Whether it’s a bank account or a Demat account, opening an account can be done from the comfort of your home through various applications or online websites. With the help of the Internet, the process is effortless and can be done in a few minutes. Apart from opening a bank account, one can check all their details and make transactions. Easy access to the portfolio leads to you being able to assess it and make changes to it accordingly.

Any Indian citizen can open a Demat or bank account as long as they are above 18 years of age and have the necessary documents for opening the respective accounts. A bank can also be a DP and assist you in opening a Demat account. This enables them to give you easy access to your funds and your investment portfolio. Even NRIs can open a Demat account to trade in the Indian stock market. This ensures that every Indian gets to trade in the stock market no matter where they are.

A bank account is used to transfer funds into your Demat account if the two aren’t linked. The Demat account must also be linked to a trading account. You can use the trading account to buy specific shares, and your Demat account will be deposited with the shares you bought. You can sell these shares through the trading account, and money will be credited into your bank account by the end of the settlement period.

Conclusion

The Demat account vs. bank account is an excellent discussion to learn and understand how the Demat account and bank account, although different, are pretty similar. They both have different uses but have similar functionality. A Demat account is required to invest in the stock market, so open a Demat account and start your journey to financial freedom.

Frequently Asked Questions (FAQs)