Introduction
If you are just stepping foot into the world of stock trading, then there are two things you need to do. The first is to open a Demat account and then to open a trading account with a reputed stockbroker. Without these two accounts, trading is impossible, to say the least. When it comes to these two accounts, you also need to be aware of the types of Demat accounts and trading accounts that exist. Here is a look at the basics of the Demat and trading account and their different types.
Understanding the Trading Account
The trading account is a necessity if you want to buy and sell securities in the stock market. It is linked to your Demat account which works as an electronic storehouse to house all the securities you have purchased.
Types of Trading Accounts
To know which kind of trading account you should have, here is a look at its different types:
- Equity Trading Account
- Such a trading account enables investors to buy and sell stocks, futures, and options.
- Usually linked to a Demat account which holds the stocks.
- An equity trading account can be of two types – a Cash Account where investors have to pay the full price of a stock to buy it and a Margin Account, where investors can borrow money from brokers to buy investments that are usually pledged to the broker.
- Commodity Trading Account
- With a commodity trading account, investors can trade in commodities on commodities exchanges like the Multi Commodity Exchange (MCX).
- You cannot trade in stocks using a commodity trading account.
- The 2-in-1 and 3-in-1 Trading Accounts:
- A 2-in-1 trading account integrates both the Demat and the trading account and provides a seamless way to transfer shares between them
- A 3-in-1 trading account brings together the Demat and trading facilities with banking facilities as well.
Understanding the Demat Account
The main purpose of a Demat account is to hold all the securities that a trader has invested in electronically, under one roof. A Demat account can hold securities like shares, bonds, ETFs etc. The Demat account, which is a shorter form of the word “dematerialised”, has eliminated the need to hold physical share certificates.
Types of Demat Accounts
Listed below are the different types of Demat accounts
- Regular Demat Account
- A regular Demat account is a must-have if investors and traders want to invest in the stock market.
- This type works best for investors who trade in equity shares.
- The Basic Services Demat Account (BSDA)
- Introduced by the Securities Exchange Board of India or SEBI, the BSDA is a new type of Demat account in the market
- In a BSDA account, if an investor’s holdings are below ₹4 lakhs, they do not need to pay any annual maintenance charges
- For holdings between ₹4 lakhs and ₹10 lakhs, the annual maintenance fee stands at ₹100.
- Repatriable Demat Account
- With the help of a repatriable Demat account, NRIs can transfer their wealth outside India.
- To open a repatriable Demat account, NRIs need to have a Non-Resident External bank account, adhere to the Foreign Exchange Management Act and open a legal trading account.
- Simultaneously, they also need to close their regular Demat account and transfer all of their holdings to a Non-Resident Ordinary (NRO) Demat account.
- NRIs can only repatriate a maximum of $1 million in a year. in a calendar year.
- Non-Repatriable Demat Account
- A non-repatriable Demat account works like a repatriable Demat account but doesn’t allow NRIs to transfer funds abroad because an associated NRO bank account is needed for the purpose.
- NRIs having both an NRE and an NRO account can own up to 5% of the paid-up capital in any Indian company
- They can also invest in an IPO in a repatriable form through their NRI Demat and bank account
- When investments are non-repatriable, NRO and NRO Demat accounts can be used.
Conclusion
The various types of Demat accounts and trading accounts provide much flexibility to investors. However, it is important to be aware of their features to make sure that investors opt for the right one to have a successful trading journey.
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