The trading and demat account can be opened either with the banks or with the brokerage firms. Both are having some advantages and disadvantages.This article will help to understand the pros and cons of a demat account and trading account with bank and broking houses.
A comparative analysis of a Demat and trading account with bank and with brokerage house
If you want to invest or trade in share market, then you have to have a trading and demat account. There are many brokerage house which provides the same. Now a days, almost all the banks have also come forward to offer the same. There are some advantages and disadvantages between the banks and brokerage houses with respect to the brokerage and some other aspects.
Here is a comparative analysis for the same.
Generally bank provides the equity market investment facility with a three-in-one account. These three accounts are a savings account, a trading account and a demat account. All these accounts are interlinked in such a way that you don't need to have any extra effort to transfer the funds between your trading and savings account. Here is an example how the things work.
Let us consider that you are having all three accounts in place. You want to purchase some shares. So you place a purchase order from your trading account. While placing the order from your trading account, it will ask for the hold amount. You select the hold amount and purchased the shares. End of day your account will be debited with the exact amount for the purchase.
Now for the sell, when you sell the shares, the amount will be credited to your savings account directly on the T+2 day.
Now for the brokerage house, they provide a online trading account and the demat account. Your savings account will be linked with the trading account. Basically the brokerage houses are having the tie up with the banks where you maintain your savings account.
Now if you want to purchase some shares, then you first need to transfer your money from savings account to trading account. Once you open a demat account and purchase the shares there may be some amount which are under utilized will remain idle in your trading account whereas in case of bank since the money lies in savings account it will continue to draw the interest. If you want to transfer the money from trading to savings account it will also take some time. Every-time you need to do the fund transfer between your savings and trading account.
The brokerage of banks is generally higher in the range of 50-75 paise. It is some cases are negotiable based on your trading volumes. Whereas the broking houses offer an attractive brokerage in the range of 10-30 paise which is further negotiable with your trading volume.
Some cases the broking houses keep the shares in their pool account. They don't transfer it to the demat. So any corporate benefit like dividend rights will not be received by the share holders if the shares are in pool. Whereas in case of bank it always goes to the delivery account.