When Can You Have a Demat Account Without a Trading Account?

Most new investors, when venturing into the stock markets, are aware of the fact that investing and trading in stock markets requires a demat account and trading account. However, there is still a great deal of confusion regarding when trading without a demat account is possible and vice-versa. New traders assume that both these accounts are necessary to obtain for successfully trading in the stock markets.  In reality, both these accounts have unique applications and differ in the purpose they serve investors.

What Is The Fundamental Difference Between Trading And Demat Account?

A trading account is a medium to buy and sell shares on the stock markets. In simple words, if you are looking to buy and place orders on the stock market, you will necessarily need a trading account. On the other hand, the demat account (short for dematerialized account) is like a bank account. Just like you would keep your money secure in a savings bank account, in the same way, a demat account’s primary objective is to hold your stocks securely. In other words, a demat account is a facility for investors to deposit their stocks. Investors can keep the stock they buy securely in a demat account and when it comes time to sell the stocks, they can withdraw as per the investors preference.

In a nutshell, a demat account is used for storage of stocks and a trading account is used for transacting on the stock exchange. In this way, both accounts are intrinsically linked to one another. It is very hard to use one without the other and most brokers will encourage you to open a trading-cum-demat account. However, it’s not necessary to open both simultaneously. There are a few trading activities that can be undertaken with just a demat account and vice-versa.

When You Want To Invest In Mutual Funds?

The introduction of demat accounts has paved the way for simplicity when it comes to buying and selling shares in a paperless manner. However, a demat account invites annual charges and transaction charges every time you make or withdraw an investment. This puts several restrictions and increases the cost of investment. Investors can bypass these additional charges by investing in mutual funds. Mutual funds can be bought or sold without the need of a demat account. Individuals can make investments or withdraw investments easily via the mutual fund website or third-party platforms.

When You Want to Deal in Physical Shares?

Some investors want only physical shares in the form of share certificates. Demat accounts have replaced physical shares and brought about digital transformation in the way we buy and sell shares. However, some investors still prefer to use physical shares the old fashioned way. Trading in physical shares does not require a demat account.

When You Want to Convert Physical Shares to Demat?

Investors looking to convert their physical shares to their demat holding do not require a trading account. In order to convert their holdings, investors need to submit an application of Demat Requisition Form (DRF) with the original physical certificates to your depository participant. The depository participant will raise a request to have the physical shares transferred to your demat account with the registrar and transfer agent (RTA). Once the RTA approves the physical shares, the shares will be transferred to your demat account. It’s important to remember that in order to sell these shares at a future date, it will be necessary to have a trading account. Depending on the value of the shares, you might want to eventually consider getting a trading account.

When You Receive Online Shares?

When receiving online shares as a gift or part of an inheritance, to receive said shares, you do need a demat account. If you intend to hold these shares for an extended period of time a trading account is not required. However, at the time of selling these shares you will be required to attain a trading account. Let’s look at an example to understand this a bit better.


Your uncle decided to gift you shares, however, you do not have never ventured into stock trading. In order to receive the shares, you have been instructed by a broker to open a demat account. For the time being, you have no need of funds and therefore decide to hold on to these shares. For the purpose of holding these shares you do not need a trading account.

When You Intend To Trade In Futures And Options?

On the other hand, share trading without a demat account is possible in a limited number of scenarios. For forms of investments like futures, options, and other non-equity assets, you do not require a demat account. This is because futures and options are cash-settled and do not result in delivery of online demat accounts. This is true for non-equity assets like government bonds, gold bonds, and others. However, if you plan on trading in equity assets you will require a demat account. SEBI regulations insist that all trading of equities must mandate a trading-cum-demat account.

Final Thoughts

Before you venture into the world of investing in stock trading, it’s imperative that you understand the nuances involved. Having only a trading account or a demat account, as mentioned above, can be possible, however, the merits of doing so may not have greater benefit for an investor. Having a trading account with a demat account will ensure that the stock you buy or sell can be easily transferred and delivered seamlessly. Having just one type of account will limit your trading options. Even in the event of an IPO allotment where you decide to sell your shares at a later point, you will require a trading account at some point or other. If you are looking to save money on demat account or trading account fees and changes, there are a number of viable strategies you can adopt to save on that front.