It is quite a grind to make money in the stock market. However, research, patience, and giving time to your investment to get mature is the key. Moreover, there is no foolproof investment plan that can fetch money instantly. Investing and creating wealth is a long-term game, and also, both go hand in hand. Without investing it is not possible to create wealth. As retail investors, we always get swayed away with the market momentum, however, that is one thing you should avoid. It is always better to look at the bigger picture and have a long-term perspective while investing in the stock market. So prefer buying quality and cash-rich company stocks, they usually outperform in the long run.
For better understanding, let us look at this scenario. In 2007 BSE Sensex was trading at Rs.20000 and as of June 2021, it is at Rs. 52,631. In between the market has faced two major crashes. The 2008 financial crash and the 2020 pandemic crash. In Spite of these crashes, Sensex has given a CAGR of approximately 7.06%, in 14 years.
In recent times, brokers have made online trading a piece of cake. It is similar to doing online shopping. All you have to do is to log in to your trading account and place an order. Also, you can place a buy and sell order on your trading platform very easily. Thanks to the user experience of the application, provided by the brokers.
To start investing in the Indian stock market you will require these three accounts: Demat, Trading, and Bank Account.
Demat Account Meaning
It is the first and foremost thing to do, to begin your financial journey. The Demat account is used to store the dematerialized shares electronically. Also, the working of a demat account is similar to a savings account. Whenever a buy order is placed, the security gets deposited into it. On the other hand, whenever you place a sell order, the financial security gets debited from the demat account.
Importance of Demat Account
- You can trade in a variety of financial instruments other than equity shares such as; bonds, commodities, government securities, and many more.
- It keeps a record of your financial statement, along with providing a platform to trade.
Working Of A Demat Account
- After the document verification, your broker will provide you with a unique Demat Account Number and password for your trading portal.
- The electronic portal will allow you to deposit or withdraw money at your convenience. With the deposited money, you can buy and sell securities.
Trading Account Meaning
A trading account is a platform provided by the broker and is used to buy and sell financial securities. After the Demat account gets activated, you can use this account to buy and sell shares.
Importance of a Trading Account
To begin investing in the Indian stock market it is important to have three accounts; a demat, trading, and a bank account. A trading account is a medium that connects your bank and demat account.
Working Of A Trading Account
The trading account connects you to the servers of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Thus, shows real-time price movement of financial security.
The bank account is used to transfer funds into a trading account to buy or sell securities. Also, whenever the shares are sold, the proceeds from the sale are transferred back into the bank account.
Importance Of Bank Account
The trading procedure becomes seamless when both demat and trading accounts are linked to bank accounts. The bank account is widely used to transfer funds, to trade in the stock market.
Role Of Demat and Trading Account
It provides a safe and secure place to hold financial securities. Whenever any financial instrument is bought for the delivery purpose, it is stored in the this account. Whereas, the trading account ensures the safety of the transaction. It is directly connected to the depositories’ servers, therefore, whenever you place a buy order the trading account connects the order with the seller and Vice-Versa.
Charges Related To Demat And Trading Account
1. Brokerage Fee
It is the most commonly known charge and the biggest source of income for brokerage houses. Brokerage firms charge a commission for the services that they provide.
2. Demat Account Charges
A nominal fee has to be paid by you while opening a demat account. All brokers have different charges. The fee depends on the brokerage firm that you choose. Generally, the fee ranges between Rs.300 to Rs.700.
3. Call and trade Charges
If you wish to place an order by calling the help desk of an internet broker you will have to pay a fixed amount. The mount will be written on the agreement given to you while opening Demat accounts.
4. Account Maintenance Charges (AMC)
The brokers charge an annual fee to maintain your demat account. That fee is called Account Maintenance Charge.
5. Depository Participant Charge
When you sell any share, a certain fee is debited from your demat account at the end of the day.
You can begin your financial journey by taking up a course on both fundamentals as well as technical analysis. Moreover, we live in a world where information is abundant and somewhat free for all. Therefore, you can use all the free resources to get yourself ready to enter the stock markets. But first, you will require a demat and a trading account, to begin with.