It is possible for an investor to open a demat account to hold securities such as shares, bonds and debentures, mutual fund units in electronic form without simultaneously opening a trading account that will be linked to it. Typically, these accounts are bundled together.
A 3-in-1 product brings together demat, trading and bank savings accounts. The demat account is used to hold securities in dematerialized form. The trading account is used to buy and sell securities that are automatically credited or debited to the demat account and any payment or receipt of funds for trades done happens through the bank account. A 2-in-1 account has demat and trading accounts.
Investors can also choose to have just a demat account. This is useful for investors looking to hold securities that have been already acquired earlier or who invest only through initial public offerings or new fund offers and don’t intend to trade. However, if at any time, they intend to sell the securities, they will need to open a trading account and link the demat account to it.
Investors can also choose to have the demat and trading accounts with different service providers. While there are advantages, such as ease of operations, of having both accounts with the same entity, other options should be evaluated to get the best fit on costs and services. To be able to execute stock market transactions, the trading and demat accounts have to be linked and this is not affected by the service providers being different entities. Investors can also link multiple demat accounts held by them where they are the first holder to a single trading account. Similarly, one demat account can be linked to more than one trading account.
The selection of demat and trading accounts should be done after proper evaluation of investors’ needs and the costs and services offered. A basic services demat account (BSDA) which has lower costs is adequate for an investor looking to just hold securities without too much active trading, provided the holding is within the prescribed limit of ₹2 lakh. Look at the account opening charges, account maintenance charges, brokerage charged and additional facilities such as research inputs provided by the broking firm and the efficiency in customer service before choosing a service provider.