Types of demat and trading account

A Demat account ensures a simple, seamless, paperless, and genuine trading and investing. However, to maintain the genuineness of the process, you need to provide certain documents for opening a demat account.


Various types of Trading and Demat Accounts

The word "Demat" comes from dematerialization. Dematerialization is the conversion of paper-based shares and securities into their electronic format. The National Securities Depository Limited was set up in India in 1996, and it marked the beginning of online security trading. The Securities and Exchange Board of India has made the opening of a demat account compulsory for investors to trade in the equity-related investments. But, apart from a demat account, investors also need an online trading account to buy and sell shares online. Let us understand the differences between the two.

1)Demat Account – A demat account is a place where you hold or store the shares and securities in their electronic format. Opening a demat account is necessary if you want to view, store and manage the bought stocks.

2)Trading Account – A trading account is a bridge between the demat account and the bank account of the investor. It provides the facility of buying and selling the shares in their electronic format. Shares purchased through an investor's trading account are credited to his demat account, and stocks sold are debited.

There are different types of trading and demat accounts that serve the objectives of varying types of investors. Each of these accounts has its distinct characteristics, advantages, and limitations. Let us have a look at the types of demat and trading accounts.


a)Regular Demat Account – If an Indian Citizen wishes to trade in the Equity investments online, he can open a Regular Trading Account. This account is only for the residents of India.

b)Repatriable Demat Account – If a Non-Resident Indian wants to trade in the global market, he opens a Repatriable Demat Account. As this account allows the investor to transfer funds abroad, it needs to be linked to an NRE Bank account.

c)Non- repatriable Demat Account – If a Non- Resident Indian wants to trade in securities, but does not wish to transfer funds abroad he can open a Non- repatriable Demat Account. This account has to be linked to an NRO bank account.


a)Equity Trading Account – If investors wish to trade in equities, futures, and options, only, they can open an equity trading account. Currently, Currency Derivatives can also be traded through this account.

b)Commodity Trading Account – The Forward Markets Commission (FMC) is the Regulatory Authority for the commodity market in India. It independently managed and regulated the commodities market until recently when it was merged with the SEBI. However, due to the earlier separate domains, investors cannot trade commodities through their existing equity trading account. A separate commodity trading account allows investors to trade in the commodities market. In the future, equities and commodities may be traded through a single account as SEBI is taking steps to integrate the two markets further.

c)Online versus Offline Trading Accounts – There is a clear distinction between these trading accounts. An offline trading account does not allow online trading of securities and shares. It is the traditional method of informing the broker personally to buy or sell shares. Currently, offline trading accounts are not preferred by investors due to the hassle of calling or visiting the broker for every trade.

An online trading account, as the name suggests, allows investors to buy and sell shares online through the comfort of their homes or offices with the help of online trading platforms. These trading accounts are being commonly preferred with the advent of digitization. They are cost effective and provide a quick, accessible, flexible and seamless trading experience to the investor.

d)2-in-1 account versus 3-in-1 trading account – Both these accounts fall under the category of Online Trading Accounts. Any online share trading framework involves three parts, a trading account, a demat account, and a linked bank account.

A 2-in-one trading account combines two parts of your trading framework, i.e., the demat account and the corresponding trading account. When shares are bought in the trading account, they are seamlessly credited and stored in the linked demat account in T+2 days. Similarly, shares are debited through the demat account in T+1 days when they are sold through the trading account. 2-in-1 trading accounts are today the most common type of online trading accounts provided by the brokers.

A 3-in-1 trading account integrates all the three parts of the trading framework; trading account, demat account, and the linked bank account. These type of accounts are provided by the banks that provide in-house equity trading and demat services to their customers, for example, Kotak Securities, Axis Securities, etc.

Nowadays, with digitization and integrated services, all types of bank accounts are seamlessly linked to the trading and demat accounts even on 2-in-1 platforms. So, even though the 3-in-1 trading account provides the entire framework on a single platform, it doesn't have a massive advantage over the 2-in-1 trading account.

e)Discount Broking Accounts and Full-Service Trading Accounts – The distinction between these two types of accounts is the difference in the knowledge of the equity market among investors.

A discount broking account provides only a purely trading feature to its clients. They do not offer the frills of advisory services, research assistance, offline trade facility, data and reports for investor education, etc. The discount broking account provides a plain and simple buy and sell of shares for the investors. As a result, they charge meager brokerage fees. These accounts are favorable for investors who have a good knowledge of market trading and require the broker only for executing the trade.

A Full-Service Trading Account provides a host of additional services apart from the basic trading of shares. They provide the investors with market research and other advisory services to equip the investors with making an informed choice, and hence charge higher brokerage fees. This account is for amateur investors or those who do not have the time to research the market themselves.