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! :)