There are multiple 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 demat account and bank account along with learning to open a demat account and a trading account well.
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. A bank account 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 transfer
What is a Trading Account?
A trading account is utilized 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.
Pros 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 demat account. Together the bank account and demat account coupled with the trading account provide a seamless trading experience.
Demat Account vs Bank Account
A demat account, although similar to a bank account, is different from each other
|Bank Account||Demat Account|
|Used to store funds||Used to store various types of securities|
|A bank or financial institution provides a bank account||Depositories provide demat account service|
|One can directly visit a bank to open an account||One must approach a depository participant (DP) to open an account|
|Isn’t mandatory for trading in the stock market||Mandatory for trading in the stock market|
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 a bank account or a demat account, opening them can be done from the comfort of your home through various share trading apps 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 an 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 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 has to 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. The money will be credited into your bank account by the end of the settlement period.
The demat account vs bank account is an excellent discussion to learn and understand how 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.