What accounts do I need to have to Invest in the share market?
Investing in the share market can be significantly rewarding with the right choices based on adequate market knowledge. Therefore, share market investments are the essence of financial planning.
The online trading system has transformed the working system of share markets. Share markets are accessible online now. In the online trading system, it is convenient to invest in stocks of companies across industries and liquidate them on stock exchanges whenever investors find it necessary. There are specific needs to enter the share market and begin the investing journey. Explore the post to get insights into three mandatory account requirements in the online trading system.
Must-Have Accounts for Share Market Investing
Share markets operate online and deal only with the digital form of shares. Therefore, investors need to have three accounts –
- Bank Account
- Demat Account
- Trading Account
These three different accounts serve their unique purpose, but they are codependent for online trades. Online demat account opening along with a trading account is a matter of minutes with a stockbroker registered with the SEBI (Securities Exchange Board of India).
What is the Requirement of a Bank Account?
A bank can be a savings account or a current account with a bank. Investors can open a new bank account or register the one they already have in a bank. It is the account to fund a trade or receive sale proceeds after the trade settlement.
What are the Functions of a Demat Account?
A demat account holds shares electronically. It is the repository for digital securities. It is the only way to hold shares in the online trading system. No demat account means no stock investing.
- It is a safe way of storing financial assets, including shares, bonds, mutual fund units, etc., in electronic format safely. A demat A/C holder can access them using the demat account login credentials only.
- It makes investment portfolio tracking convenient as all securities are stored in one place. Know where your investment portfolio is heading and if aligned with set financial goals.
- It is making the share ownership transfer, i.e. buy/sell, faster and easier.
- Investors can receive bonus issues, rights issues, split shares, dividends, and other corporate benefits in a demat account automatically.
- It facilitates dematerialization of paper-based shares into digital format.
What are the Functions of a Trading Account?
A trading account allows individuals to trade shares on stock exchanges. Since stock exchanges operate online and facilitate screen-based trading, there is no physical reach to the stock market. It is a mandatory account to trade shares.
- A trading account allows investors to use the broker’s online trading platform which is linked to multiple stock exchanges. No trading account means no buying or selling of shares because there are no ground-based stock exchanges now.
- Trades placed using a trading account can be settled within two days after the transaction day. Depending on the stock exchange, it can follow a T+1 day (transaction day + 1) settlement period also in the online trading system.
How These Accounts are Codependent
Investors need to interlink their demat, trading account and bank accounts to trade shares.
- When investors purchase shares, they get credited to their demat accounts, and the registered bank account gets debited with the trade value. The bank account gets credited with the sale proceeds if it is a selling trade.
How Online Trade Works Using These Three Accounts
- When an individual places a trade order to buy or sell shares using the broker’s trading platform, the broker forwards it to the relevant stock exchange. It gets executed on the stock exchange. The exchange matches the buying and selling orders with the same securities in the same number. Then the order is processed in the stock market.
- A clearing house helps to clear and settle the trade transaction after the successful match of trade orders.
Thus, an online demat account, trading account and bank account are the three pillars in the screen-based trading system providing the right framework to invest in share markets. After opening these three accounts, an individual is eligible to trade in the share market. Open a demat and trading account for free with trusted discount brokers and get ready to meet set financial goals with well-researched share market investments.