To buy a share you need three accounts. They sound similar, and beginners often think they are one thing. They are not, and the difference explains a lot of what happens later.
| Account | Holds | Maintained by |
|---|---|---|
| Bank account | Your money | Your bank |
| Trading account | Nothing, permanently | Your broker |
| Demat account | Your shares | NSDL or CDSL, through your broker as DP |
Bank account — the money
Ordinary savings account. Nothing special is required. It is linked to your trading account so funds can move in and out.
Money you transfer to your broker for trading sits in a segregated client account, kept separate from the broker's own money. SEBI requires this. Under running-account settlement rules, unused funds are also periodically pushed back to your bank account automatically.
Trading account — the doorway
This is the one people misunderstand. A trading account does not hold anything long term. It is the facility through which you place orders. Think of it as a doorway rather than a room.
It records your orders, your trades, your margin, and the temporary balance between the moment you sell and the moment settlement completes.
Demat account — the shares
"Demat" is short for dematerialised — the conversion of physical share certificates into electronic records, which India completed decades ago.
Your demat account is an account with NSDL or CDSL, opened through your broker acting as a Depository Participant. Your shares are recorded there, against your name and PAN.
Each demat account has a unique number. A CDSL account is a 16-digit number. An NSDL account
is written as a DP ID plus a client ID (for example IN300xxx followed by 8 digits). You
will need this number for IPO applications and for transferring shares.
What you need to open them
- PAN card — compulsory, no exceptions
- Aadhaar — for e-KYC and address proof
- Bank proof — cancelled cheque or recent statement
- Signature and a photo
- In-person verification, now usually a short video selfie
- Income proof — only if you want to trade derivatives
Opening is almost entirely online and typically completes within a day.
Nomination — do not skip this
When you open the account you are asked to nominate someone, or to explicitly opt out. SEBI requires the choice to be made.
Please nominate. If something happens to you, a nominated account transfers to your nominee with a fraction of the paperwork an un-nominated one requires. Crores of rupees of Indian shares sit unclaimed for exactly this reason. You can add up to three nominees and specify percentages, and you can change them any time.
Charges to expect
| Charge | Typical shape |
|---|---|
| Account opening | ₹0 to a few hundred rupees |
| Annual maintenance (AMC) | ₹0 to ~₹500 per year, depending on the broker |
| Brokerage | A percentage of turnover, or a flat fee per executed order |
| DP charge on selling | A flat amount per company per day when shares leave your demat account |
| Statutory charges | STT, exchange transaction charges, SEBI fee, stamp duty, GST |
Basic Services Demat Account (BSDA)
If your holdings are small, ask about a BSDA. SEBI created it for small investors: as long as the value of your holdings stays under the prescribed limit, annual maintenance charges are nil or heavily reduced. You must not hold another demat account as sole holder to qualify.
Brokers do not always offer it unprompted. Ask.
Joint accounts and a common trap
A demat account can be single or joint. Names and their order must match exactly across your accounts.
The trap: an IPO application must be made from the demat account of the first holder. Applying with your own bank account and UPI while quoting a demat account where your spouse is the first holder gets the application rejected. Check whose name comes first.
Key takeaways
- Bank account holds money, trading account places orders, demat account holds shares.
- A trading account is a doorway, not a store — nothing stays in it.
- Your demat account is with NSDL or CDSL in your own name, opened through your broker as DP.
- Always add a nominee. It saves your family an enormous amount of trouble.
- DP charges are flat per sell transaction, which makes tiny sell trades expensive.
Check your understanding
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