INVESTING IN STOCK MARKET

To trade in the stock market you need a trading as well as a demat account. The process is not as complex as it looks to some of us. All you need is to understand the basics. Read on to know more.

Words: SANGEETA SINHA

To trade in a stock market you need demat and trading accounts. Demat (dematerialized) account is mandatory for trading in stocks. It is through a trading account that you buy or sell shares, while a demat account is like a bank where you deposit your shares and sold shares are taken from. Some banks offer the facility of saving, demat as well as trading at one place.
Now before we go into the details of trading and demat accounts let us understand what stocks are as explained to a layman. In simple words once any company lists on stock market, the shares of the company become available

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for trading on the stock exchange; just get registered with the stock exchange and start trading. Opening a trading account is simple; it can be done online through a broker. It is important that you select a good broker because expertise is crucial in stock market as within minutes rates change. It is a good idea to compare brokerage rates but it is advisable to go for brokers who provide good service rather than ones who charge you less. Once you decide on the broker contact them, fill up the forms, submit the necessary KYC documents and get ready to start trading in the stock market. After verification of your application you will be given your trading account details.
So with your trading and demat account in place you can easily do your trading. Make sure that you link your trading and demat accounts so that you avoid providing demat account details every time you trade.

Process is simple, place your order (buying or selling) through your trading account, the stock exchange will process and verify your order and then the shares will be either debited or deposited in your demat account.

INVESTOR VS TRADER
The goal of an investor and a trader remains same – trying to make profit in the financial markets, but the methods differ. The process of investing and trading differ in the way one operates; investing involves holding on to the investments for long periods of time taking advantage of interest, dividends etc. while trading involves regular buying and selling of stocks.
SOME HANDY TIPS

» Before planning to invest in stock market make sure you have some security money in case of any emergency

» Choose a good broker

» Don’t get carried away by advise given on whatsapp or Facebook, do your own study and invest

» Learn to time the stock market; don’t get carried away by short gains

» Review your portfolio at regular intervals

» Don’t allow your broker to trade; signing forms blindly and handing over to your agent may backfire

ASK THE EXPERT

Manoj Chaturvedi has rich experience of banking having worked both in India and Europe during last 16 years. Presently he is working with HDFC Bank Limited as Deputy Vice President in Wholesale Credit Risk. He is by qualification an MBA from XLRI, Jamshedpur and LLB from Faculty of Law, Delhi University.

What is Depository and Depository Participant (DP)?
A Depository is in fact similar to banks, where securities are held in electronic (dematerialised) form. In India, we are having two Depositories -National Securities Depositories Limited (NSDL) and Central Depository Services Limited (CDSL).

Depository Participant (DP) is the place, where shares in physical form used to be deposited for the dematerialization purposes i.e converting the same to electronic form. DP is very akin to the bank branches.

Is it mandatory to dematerialize the physical share certificates?
No, it is not mandatory to dematerialize the physical share certificates. But all features of demat now can be accessed on mobile banking and easy to operate. Bonus / right shares gets easily credited to these account and transaction cost is also lower than it used to be in physical forms.

Can a person have more than one demat account in his name?
Yes, a person can have more than one demat account in his name; there is no restriction on that. An investor can open more than one account in the same name with the same Depository Participant (DP) or different DPs provided all KYC documents are submitted.

Can a demat account holder authorize another person to operate the same? If yes then how?
Yes, a demat account holder can authorize any person to operate his/her account by executing a power of attorney (POA) to this effect.

In case, any demat account holder wants to re-operate the account on his own, it can be done after having revoked the POA in writing.

Can I transfer shares to another demat account?
Yes, it is very much possible to transfer shares between demat accounts. The duly filled slip has to be submitted to the concerned DP and the transfer is done by NSDL or CDSL after receiving the document forwarded by the DP on behalf of the client. But the shares transferred from and the shares transferred to should fall under the same depositary i.e NSDL to NSDL and CDSL to CDSL.

I have some non-demat shares. How do I transfer them to demat account?
Open a demat account in the name of the person who has shares in the physical form and then ask the broker to demat the physical shares.

Can I have a joint trading account?
A trading account is always a single account that means there cannot be a second holder for a trading account, though you can have a nominee for a trading account. You can have demat account with a second holder and link multiple demat accounts to a single trading account.

Can I have multiple trading accounts?
Yes, you can have multiple trading accounts though not with the same broker. Though a second trading account would give you different trading platforms but it will add to your account opening charges and you will also have burden of keeping track of two accounts.

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CAUTION IS NEEDED

» It is important that you have understood the terms and conditions of the demat agreement before opening an account. Often people give power of attorney (POA) to their broker which he/she can misuse.
» Read all clauses properly before you give any POA or other instructions to your broker.
» Always keep your DIS in safe custody; every broker has to provide their client with a pre-numbered book-let.
» Check that your DIS book is in a serial order; in case of any missing page get it changed.
» DIS has to be filled every time a transaction is done; don’t give blank signed slips to your broker as it can be misused.
» You can protect your account by using the freeze option.