In the last decade, the Indian capital markets have witnessed stellar growth. With improved returns from equity investments and reduced fixed deposit interest rates, experts predict that the stock market growth story may continue in the long run. For new investors who are just starting off with investing in the stock markets, it is important to first learn the basics of investing in stocks, bonds, etc. This includes knowing some technicalities like fund transfer, Demat account functioning, etc.
For investors who want to understand the mechanics of a Demat account and how to transfer funds from a Demat account to a bank account, here are all the important details.
Just like a bank account acts as a safe house of cash in intangible form, a Demat account helps investors in safekeeping securities in electronic or digital form. Since the assets are held in a Demat account in digital form, an investor can trade in these quickly and at any time during trading hours. New investors must register or apply for a Demat account along with a trading account. Trading account helps investors in executing the sale or purchase of securities that are held in a Demat account.
A Demat account holds shares, securities, bonds, mutual funds and other assets in a dematerialised form. Dematerialisation allows quick investment or exit in capital markets and all transactions can be carried out online.
With a Demat account, an investor can easily monitor and trade in securities seamlessly. While dealing in securities, an investor needs to have a Demat account and also a trading account. A trading account acts as a bridge between the investor’s Demat and bank account. A trading account stores the cash flow details (debit or credit) of all transactions, whereas a Demat account acts as a storehouse of securities.
If an investor or trader wants to buy or sell a stock, a depository participant will place the same request in his/her trading account with the stock exchange. For a buy request, the stock exchange will identify a seller who may have placed an order to sell a certain number of shares. After identifying a seller, the depository will further issue orders to the clearance houses for debiting shares from the seller’s Demat account and crediting them to the buyer. The sale proceeds will then be credited to the trading account that is linked to the seller’s Demat account in T+2 days after the sale of securities. As a last step, the funds can be transferred to the seller’s bank account from his/her trading account.
Here are the steps that can be followed for transferring funds from a Demat account to a bank account:
Here are some of the important points to note while transferring funds from a Demat account to a bank account:
Stock markets are attracting more investors than ever before due to rapid digitisation and smooth account opening processes. This has also resulted in increased knowledge about stock market functionalities among the masses. With easy transactions and fund transfer processes, it is no longer difficult for a common man to trade in stocks.
Yes, both trading and Demat accounts are needed for stock market investments. However, those who want to perform intraday trading need not have a Demat account, as it does not involve the delivery of securities.
No, a trading account is essential for stock market transactions.
To open a Demat account, you can download the Fisdom app on your smartphone. The app has an end-to-end online process of KYC and account opening for stock investment purposes.
Most brokers do not levy any charges for fund transfer from Demat account to bank account. However, an investor must clarify the specifics with his/her broker.
The Demat account opening charges could differ across brokers and broking platforms. Some may even charge zero fees for Demat account opening.
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