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The Indian stock market is ever-growing as India’s economy grows in a positive direction. A trading account and a Demat account are a must to trade in the Indian stock market. This has been made compulsory by the Securities and Exchange Board of India (SEBI). It was established as a statutory body in 1992 and is responsible for regulating securities and trading activities. It has significantly influenced the establishment of depositories and trading activities. A Demat account, apart from being used for trading purposes, helps store various types of securities. Along with shares, one can keep debentures, sovereign gold bonds, Exchange Traded Funds (ETFs), government bonds, mutual funds, tax-free bonds, certificates of deposit, etc.
A Demat account functions like a bank to store securities, while a trading account is utilised to buy and sell shares. Your trading account is generally linked to your bank account and needs to be linked to a Demat account to carry out trading functions. A trading account is used for simple investment activities like buying and selling shares and for trading activities like intraday trading and trading in futures and options. Both the Demat account and the trading account can have versatile usage. You can use both by linking the Demat account to the trading account. Before understanding how to link a Demat account to a trading account, knowing the difference can help see why both are essential for trading.
Difference between Demat and Trading Accounts
| Demat Account | Trading Account |
| A Demat account is mainly used to store shares and other securities. | The trading account is typically utilised to buy and sell shares. |
| Securities are stored in digital format, making it a safe form of storage. | The trading account is linked to your Demat account and bank account to provide seamless trading on the stock exchange. |
| SEBI and the depository must agree before an account is opened via a depository participant (DP). | The trading account can be opened with any stock broker and doesn’t need any approval from regulatory bodies. |
| There could be account opening fees as well as account maintenance charges (AMCs), which would have to be paid regularly. | Depending on the broker, there could be account opening fees with no maintenance charges. |
| A Demat account is best for share traders and investors who look forward to storing other securities. | A trading account is instrumental in intraday and derivative segments. It is most useful in segments that are settled in cash and where delivery of securities isn’t involved. |
Can You Link the Demat Account to the Trading Account?
As per SEBI, a trader or investor could open or possess multiple Demat accounts. The only limitation is that one Demat account can be opened with one DP. To open another Demat account, one must approach another depository participant. To answer the question of whether it is possible to link Demat and trading accounts, the answer is yes. One can link a Demat account from a DP to a trading account opened with a stockbroker. But there’s a catch: a broker might not allow you to link multiple Demat accounts to their trading. So, one must inquire before choosing to go through this whole process.
How Do You Link Demat Accounts with a Trading Account?
Although the process is relatively simple, it entirely depends on the broker you choose and if they enable this feature. If you have already opened a Demat account and are trading, the newly linked Demat account will be treated as a secondary account. All that must be done to connect your accounts is to log into the broker’s portal, click on the link option they provide, and enter the necessary details.
Conclusion
Although it can be challenging to manage multiple Demat accounts, one can link all their Demat accounts to a single trading account. One can also open a Demat account with a DP and a trading account with a broker and connect the two. It’s the free will of the trader how they wish to go about their journey of achieving financial freedom. One must always aim to grow, multiply their investments, and strive to be a better investor. Additionally, to safeguard against Demat account fraud, it’s crucial to choose a reputable and regulated depository participant (DP) and broker for your accounts.