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To invest in the stock market and buy equity, you need three things
Demat account is short for ‘dematerialised account’ - a paperless or digital form of buying and selling stocks and other financial instruments. Demat accounts have been made mandatory for trading in stocks in India. Any investor who wants to buy and sell shares has to open a demat account. A trading account is an account from which you buy and sell shares. A demat account can be opened with any brokerage house such as ICICI Securities, Motilal Oswal, Kotak Securities and many others.
Stock market investment and trading
To invest in the stock market and buy equity, you need three things.
First, a bank account is necessary to draw money when you buy shares or receive money when you sell shares. Second, a trading account is required, from where you sell and buy stocks online. Finally, you need a demat account, which works as repository of shares bought and sold. The shares are in digital form.
Corporations that are into banking and broking offer all three accounts, also known as 3-in-1 account, where all these three accounts are connected in a seamless manner. You would not have any hassles managing multiple accounts or navigating through multiple accounts to transact in shares. All the banking firms offer 3-in-1 accounts.
Companies which are only in broking offer demat and trading accounts. You have to open a new bank account or can use your existing bank account to attach with demat and trading account opened with the broker. Few brokers have tied up with specific banks where they will help you open a bank account as well as demat and trading account.
Important features of demat accounts
Brokerage charges, annual fee, and other charges: Broking charge is the fee that you pay every time you buy or sell stocks. The broking fee is either in percentage term or a fixed amount. For example, if the broking fee is 0.5 per cent, you will have to pay 50 paisa every time you buy stocks worth Rs 100. There are separate charges for trading in derivatives and mutual funds.
Annual fee is charged yearly. The fee can vary between Rs 500 and Rs 2,000 depending upon the brokers and services provided.
There are other charges such as demat charges (if you already have stocks in paper or certificate format, the fee to dematerialize them is called demat charges), ad-hoc account statement charges, advisory fee, and option and future trading fee.
Technology and trading platform: The trading platform or the website is of crucial importance. Even though people open a demat account based solely on the brokerage charges, technology aspect of demat account should not be ignored.
A good technology platform should give you confidence and behave consistently, should not be down at the time of trading, should be easily navigable, and should not take time in loading. In fact, if you are a serious investor, technology should be given more important than even the brokerage charges.
Supporting features: A good platform lets you know the following anytime, without any intervention of broking agents.
Important points to keep in mind
First, remember that investing involves your savings. Hence, you want to be sure that you have complete control over the transactions and investment. Choose a broker based on the ease of transaction and quality of information it provides. You can go to various brokers’ websites. There are prototype models of the demat account where you can see how different pages look, what types of information are available, and how the transaction process works. This will help you decide which is easier and meets your requirement.
It is advisable to open a new bank account solely for trading purpose. This will help you track your gain in percentage terms. Using existing account or salary account makes it difficult to track because there are transactions other than buying and selling of shares. Even though, you can track the investing using demat account, keeping a separate account makes it much easier.
Finally, a demat account gives you near-instantaneous access to all types of information related to the stock market. The price of stock updates every 2-5 minutes. This has unintended consequences too. Investors get obsessed with short term price fluctuations and take hasty or sub-optimal decisions.
Avoid being too obsessed with the momentary changes in prices. Stock market prices are supposed to change every minute. There is nothing to be obsessed about it. Study a few companies in detail, select those meet your long term investment criteria, invest in those, have patience, and see your wealth grow.
Illustration: Uttam Ghosh/Rediff.com
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