Thursday, January 6, 2011

Choosing a demat and trading account

There is a lot of confusion between a trading account and a demat account to a person new to the field of investing. The charges corresponding to them is even more confusing and many hidden(by marketers).
Let me first give a brief difference between the two and then explain the corresponding charges they have. Next, give a list of key criteria to consider which demat and/or trading account one should go for.
A demat account is like a savings bank account. It keeps your shares or rather the count of the shares of each scrip (A scrip is a company name whos shares you own!) you own. Just like your bank account keeps your money or rather a count of the amount of money you own.
A trading account is required for you to buy or sell shares.
The explanation of the charges is given here:

The key criteria for selecting these accounts are:
1. Your purpose/usage. In short, how frequently are you going to buy/sell and is it intraday or delivery based. Choose the Broker whose charges are lowest according to your transaction style.
2. Look at a complete solution and not just one individual product like a demat account. After all, the money in the savings account will be linked to your trading account for buying/selling shares and the trading account will be linked to your demat account for storing the shares. Suppose you have a Savings account with Financial group 1, and the trading account with financial group 2 and group2 trading account does not have a partnering arrangement with group 1, you will be forced to open a new savings account with Group 2 itself. Similar with the relationship between the trading account and the demat account. Usually, most non-bank brokerages have tie-ups with the popular banks for savings bank accounts and demat accounts, but brokerages in a banking group company may have only the same bank as its partner.
3. Internet based trading: Some of the brokerages try to make their websites very fancy and use hi-fi new web technologies(typical example is Flash on websites) or need some installation of their trading application on the user's side. But they don’t understand is that your company's internet browser may not be technologically enabled (say, no flash is installed) and you are not allowed to install softwares in the office. Then the whole point of getting a trading account and associated demat accounts/bank account linkages,etc are pretty much useless. Not totally useless as most/all brokerages have a trading desk that you can call and order them to buy/sell. Sometimes,  your call can be on hold when opportunities emerge in the markets for minutes only (Remember gains to be made on IPO listing when the price starts dropping after hitting a high).
4. Think long term. In case you have got yourself a demat account and you have existing shares in it and you want to move to another demat account, transfer of shares is not cheap. One of the demat accounts I checked was charging Rs.50  per company scrip that is to be transferred. If I have 20 companies, it is going to cost me 50*20=Rs.1000. Others may charge differently, based on number of shares or amount worth or anything. Please find out what this amount is, in case you are ever tired of useless service and you want to change the demat account. These transfer rates are never mentioned anywhere. Buyers beware!
5. Opening one of these: Bank account, Demat Account, trading account is not easy anymore. One needs address proof, identity proof, registered mobile number for instant authorisation, etc. Gone are the days when you can walk to a new city and get one of these as if you were getting a cup of coffee in a shop. Think about the long term implications before closing any of these. Can you ever open another one without much effort?
Happy account creations! :)


  1. Thanks for the article. Very useful for starters like myself.

  2. Thanks a Ton for this lovely post.. 'Twas indeed very helpful:)

  3. Satyapriya Bhawani Sankar PandaJune 18, 2012 at 2:29 PM

    Its OK.It could have been better, if you would have explained about what is meant by demat and trading account.Then it could have been beneficial.The article lacks depth regarding demat and trading account details.

  4. Hi Ajith,

    Thanks for giving clear picture of whats happening behind the accounts needed for your purchases. I have so many doubts regarding this. Am totally new to this world. Please feel free to give me some advice which i am really need of. My mail id is given below.

    Give me a test mail. I have so many doubts regarding the service agents which provides you these services in india and so on.


  5. I opened up a trading account with Sharekhan Limited one year back in 2014. My account was opened with sector-38, Chandigarh branch. Initially their representative Manohar mobile no.(9872882154) committed me that this account is opened up free of cost and there are not going to be any annual maintenance charges for lifetime. But after one year i got a message that i need to 500 rs annual maintenance charges ( 250 rs after every 6 months). When i called up at their sector 38 branch they said yes you need to pay these charges. I talked to Manohar and he simply refused that he committed me about the lifetime free charges. Then i realized that it is a trap set by the company representatives so that they can achieve their sales target. I feel cheated. Moreover, Manohar is rude to me. I don’t know how to get my problem solved as nobody wants to help me. I want to tell people that don’t deal with Sharekhan Limited as it is a fraud trading company. I am duped, cheated and harassed

  6. hi
    aniket here

    It is a very useful article, i have an sbi savings a/c and mainly interested in mutual funds, normal shares(non-intraday,where there is no day window limitation) and i don't have a demat account. please guide me.. should i go for sbi securities? email id

  7. Thanks for excellent post. I found most helpful information about Demat and Trading Account. I have no doubt about choosing demat and trading account. Really be grateful for your informed information that you shared. Tradebulls also offers great services.

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  10. This comment has been removed by a blog administrator.

  11. Thank you for sharing such informative, useful and helpful knowledge! This gave me some insights to do better. I would really love to see more updates from you.

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