How to buy shares through demat?
Today almost 100% of the transactions in the stock exchange and all the clearing
and settlement happens only in the demat mode. Therefore one needs to understand
how to buy shares in through demat. Do you require only a demat account to buy shares
in the market? The answer is that you will also require a trading account to buy
shares in the market. A demat account is a repository of your shares. You cannot
transact on your demat account. You can only transact on your trading account. Hence
when you buy equities, you need to execute the trade in your trading account. On
T+2 day, the shares will automatically get transmitted into your demat account.
But can we buy shares without a trading account and directly into a demat account?
Yes, you can, if you are investing in an IPO:
An Initial Public Offer (IPO) is a fresh issue of shares by a company to increase
the capital of the company and use the funds for its expansion or diversification
of business. When a company comes out with an IPO it is not listed on the stock
exchange. Therefore, you cannot buy that stock in the secondary markets. Hence you
have to apply for the IPO. When you apply for an IPO, you only require a demat account.
Once the IPO allocation is completed, the respective shares will be automatically
credited to your demat account. You do not need a trading account to buy shares
in an IPO. But, what if you want to sell the shares post the IPO allotment. For
selling the IPO shares you will have to do it in the secondary market, for which
you need a trading account.
Buying shares in the secondary market through the demat account:
If you want to buy shares in the secondary market, then you will require a trading
account with your broker. Once your buy trades are executed in the trading account
and the exchange gives the confirmation then the shares will come into your demat
account on T+2 days. There is no additional effort required from your end and the
credit to your demat account is automatic. It needs to be reiterated that your broker
will transfer the shares to your demat account if the entire amount due against
the purchase is paid by you before the pay-in date. Alternatively, the broker may
also hold up transferring shares into your demat account if any dues are pending
at your end.
You also owe some duties towards your demat account:
As a prudent investor you also owe some duties towards your demat account. Every
fortnight reconcile your contract notes with your demat account to check for any
discrepancies. You can even have a zero balance demat account but if there is no
activity in your demat account for a prolonged period then your DP will freeze your
DP account and you will have to undergo the KYC again to transact in your Demat
account. Insist on pre-printed DIS booklets and always keep them in your safe custody.
Get holding statements from your DP at least on a monthly basis. Demat account is
not only a convenient method of buying shares but also a very safe and secure method.
A few basic precautions from your side will go a long way in making your demat account
safer and more robust!