Understanding the Trading Account
Opening a trading account is a crucial prerequisite for investing in financial markets such as stocks and bonds. Investment in these markets can contribute to portfolio diversification and potentially provide significant returns over an extended period. The primary requirements for participating in equity markets include a Demat account, a trading account, and a bank account, paired with a solid comprehension of finance.
Role of the Trading Account in Equity Investment
A trading account plays a key role in equity investment. When investing in equity markets, you acquire shares in exchange for money. These shares are then securely stored in official depositories that provide unique Demat accounts to investors for this purpose. Anytime you wish to sell a share, it is deducted from the Demat account.
What is a Trading Account
So, why do we need a trading account if shares are safeguarded in the Demat account, and the investment funds come directly from our bank account? Essentially, the trading account is a pivotal link between the Demat account, the bank account, and the investor. It facilitates the purchase and sale of shares, making it a mandatory requirement for trading in equity shares.
There’s one exception to the requirement of a trading account. When subscribing to a public offering, you don’t need a trading account, as the shares allotted are transferred directly to your Demat account. However, a trading account becomes indispensable if you wish to sell these shares or purchase other shares.
How to Open a Trading Account?
Step 1- Select the Right Stock Broker
Firstly you need to identify a suitable stockbroker. Several stock broking companies are available, and you must choose one that best aligns with your needs. Consider factors such as charges, supported asset types, user interface, security, and additional features. For example, Bigul is a highly reputable stock broker in India, offering a smooth user experience, rapid account setup, and a secure platform. Users can trade stocks, commodities, futures and options (F&O), US stocks, and more via this platform. As for charges, Bigul offers zero fees for equity delivery and nominal fees for trading.
Step 2- Inquire about the Account Opening Process
After finalising your choice of stockbroker, you need to reach out to the chosen company and inquire about their trading account opening procedures.
Step 3- Fill out the Account Opening Form
When you gather enough information on the account opening process, you must fill out a form for it and provide the necessary documents, such as identity, residence, and income proof. You can use an Aadhar card or passport for residence and identity proof. However, a Permanent Account Number (PAN) card is obligatory for opening a trading account.
Step 4- KYC Verification
Once you’ve submitted your documents, the brokerage firm will carry out a Know Your Customer (KYC) verification. This could involve a representative visiting your home or being done online. If you don’t want to do it online, choose the e-KYC process. Your PAN must be linked with your Aadhar card and bank account, and your registered mobile number should match the one on your Aadhar card to complete the e-KYC procedure.
Step 5- Activating the Trading Account
After the KYC verification, the firm will provide your trading account details. The activation process for the trading account typically takes maximum 3-4 days post-verification.
Necessary Documents for Trading Account Creation
To open a trading account, you will need the following:
- Proof of Identity: This can be satisfied by presenting a passport, voter ID, driving license, or Aadhar card.
- Proof of Address: Relevant documents could include telephone, water, or electricity bills.
- PAN Card: This is an essential requirement for opening a trading account.
Opting for e-KYC in Trading Account Creation
If you prefer not to submit physical documents, there’s an alternative – the e-KYC process. For this method, your Aadhar ID must be linked to your PAN card and bank account. The mobile number linked to your Aadhar card must match the number in the trading account application. Aadhar verification is conducted online via a one-time password. A copy of the PAN card and a cancelled check must also be uploaded. Post submission, you must validate your identity through video conferencing or by visiting the nearest branch of your broker.
Crucial Considerations for Opening a Demat Account
Ease of Account Creation
The process to open a Demat account is regulated by SEBI, but service providers can simplify certain aspects. For instance, with your Aadhaar number, you can utilise the e-KYC method to open a Demat account. With e-KYC, clients only need to confirm their identity via a video call or selfie. While physical account creation typically takes around five days, e-KYC usually takes less than two days.
Most brokers offer proprietary software for your use. You can identify which application provides the best interface by researching or reading reviews. You could also experiment with different mobile applications from various DPs and choose the one that suits you best. An intuitive, lag-free account interface can significantly enhance convenience.
Account Opening Costs
There are multiple charges associated with Demat accounts, including Annual Maintenance Charges (AMC), fees for physical or duplicate statements, and charges linked with dematerialisation and rematerialisation. Verifying the DP’s charges is vital to ensure they’re reasonable and consistent with industry norms. Comparing costs across different service providers can provide a clearer perspective. However, while cost savings are important, they shouldn’t be prioritised over high-quality service.
The internet has made opening a trading account and entering the market remarkably easy. Brokers have streamlined the trading process, which is one reason for the increased participation in capital markets.
- How do I initiate my trading account?
To kickstart your trading account, you first need to decide if you need a full-service or discount broker. Once you’ve made this decision, you can approach the chosen broker to apply for a trading account, fulfilling the necessary KYC prerequisites in the process.
- Is there a fee to open a trading account?
Typically, opening a trading account entails some costs, including one-time account setup fees, processing charges, and ongoing account maintenance fees (AMC). However, for platforms like Bigul, the AMC for the first year is waived off, with a modest fee applicable from the second year onwards.
- Is the trading account safe?
Yes, a trading account is very safe and secure. Brokers must adhere to strict SEBI and exchange rules and regulations and have stringent data protocols to ensure the security of transactions placed and executed.