Dematerialization, in short, called as ‘Demat’ is the process by which an investor can get physical certificates converted into electronic form maintained in an account with the Depository Participant. The investors can dematerialize share certificates that are already registered in their name and belong to the list of securities admitted for dematerialization at the depositories.
Any purchase of shares through a stock exchange needs to be routed through brokers registered with the exchange. Hence, for buying and selling shares on a regular basis, you need to register with a broker. This can be done by approaching a broker and signing up a client agreement form. It is also essential for a person to open a Demat account through which securities are delivered and received. This Demat account can be opened with a depository participant which again is a Sebi-registered intermediary. A broker asks his client to deposit money with them and then buys shares for you. The shares you buy from the broker will be transferred to your Demat account after which you own the shares. Similarly, when a person sells shares, he has to transfer shares to the broker’s account through his Demat account.
The Demat account is used as a bank where shares bought are deposited in, While A trading account is used to place buy or sell orders in the stock market.
So Trading account is an interface between your Bank account and your Demat account when you buy something, Trading account takes money from your Bank Account (Its already taken from your Bank account and saved in Trading account) and buys shares and stores it in your Demat account. When you Sell something, Your trading account takes back the shares from your Demat account and Sells them in Stock Market and get back the money and that goes back to your Bank account (actually you manually transfer it to Bank account from Trading account most of the times.
Let’s use an example
You have Rs.100 in your wallet. You go to a shop and tell the seller that you want a packet of chips, you check the price, and finalize the transaction. Then, you take the money out of your wallet and give it to the seller. In this case, the wallet acts as the Demat account, while you act as the trading account.
AIMS AND OBJECTIVES :
To Learn the process of Buying and Selling of shares through DEMAT Account.
An objective is the brainchild of any project report.The project report will always Contain certain objectives that need to be accomplished.Following are the objectives that are behind the preparation of this project on “Buying and selling through Demat Account”.
- To learn what is a Demat account and what are the benefits of Demat account
- To Learn why there is a need for a Trading account along with Demat account for someone to buy and sell his shares
- To discuss what happens inside when someone buys or sell his shares through a Demat account.Basically, we will discuss how the money is taken from the share buyer and the transferred to share seller and vice versa.
- To understand the company, its achievements and tasks, products and services and also to collect information about its competitors, its products, and services offered
- After understanding and collecting information about the organization and its competitors it will be easy to trade
- It also attempts to find ways and means of enhancing the effectiveness of derivative trading.
- To find proper solutions by means of which the present system could be overhauled.
- To understand the problem faced by customers and finding way to solve the queries
METHOD AND METHODOLOGY :
Research methodology refers to the search of knowledge.once can also define research methodology as a scientific and systematic search for required information on a specific topic.
The word research methodology comes from the word “advance learner’s dictionary meaning of research as a careful investigation or inquiry especially through research for new facts in the branch of knowledge, for example, some authors have a defined research methodology as systematized effort to gain new knowledge
- Most of the data is already available on Wikipedia but it cannot be used fully in Indian share market so we had to dig into other resources
- Through the study of a detailed report on opening a Demat account and buying and selling it from Kotak securities blog
- Through different trading books like “Trading for dummies”.
- Most of all the data was collected from Youtube explanatory videos about Demat account
Primary data is data gathered for the first time by the researcher. It is the raw form of data and thoroughly studied and hence a helpful tool for secondary data. Here the method used for collection of primary data is Web analytics Technique.
DETAIL REPORT OF PROJECT :
One cannot buy and sell shares directly through his Demat account.One needs to open a Trading account that will allow you to buy/sell shares. Many banks offer three in one Demat account.
So in order to start trading of shares one must have two accounts.
1.Trading account – a Trading account is the one which is opened with your trading member. It is this account that you use to place your buy and sell orders.
2.Demat account – A Demat account is simply like a savings account in your bank. IT simply holds your stocks and other dematerialized securities. The Demat account is opened with one of the depositories viz. NSDL or CDSL
How to trade using the Demat account?
Link your trading and Demat accounts. This way you won’t have to keep supplying your Demat account details for every transaction.
Place an order through your online trading account. This could be a market order, a limit or buy order, or an after-market order. If your brokerage allows you to place orders through the phone, then you will need to supply your trading account details.
The exchange will process your order. It will verify the details of the transaction, the market price, the availability of the shares in the market, and so on. It will also check the details of your Demat account that is linked to your trading account. This is especially so in case of a sell order.
Once the order is processed, the shares will be either deposited in or debited from your Demat account.
When you want to buy a share of a company, as a retail investor, you will need to place it through your stockbroker. An investor is not allowed to place orders directly with the stock exchanges.
The broker then transmits this order to the exchanges, typically on a real-time basis. Inside the exchange, the order goes into the trading system. Depending on the order category, the order is sent for execution (market orders) or to the order book (limit order). [There are some more order categories, but I will not go into those details for the sake of simplicity].
A market order is executed against the first opposite order that comes along i.e your buy order is executed against the first sell order available.
All orders in the order book are prioritized by price-time priority. So a limit order goes and sits in the order book accordingly and will be executed only when the price of your order is reached. Till then it remains in the order book as an open order. If the trading session ends before your order is executed, your order is automatically canceled by the exchange.
Once an order is executed, the process of clearing and settlement begins. Here the money is taken from the buyer i.e. you and given to the seller of the security. Simultaneously, the share is taken from the Demat account of the seller and transferred to the Demat account of the buyer. All these processes are done transparently to both the buyer and the seller and are done jointly by the exchanges, the trading members, the clearing members, the custodians and the banks.
BIBLIOGRAPHY / REFERENCE :
- Wikipedia.com for Definition of Demat accounts.
- The economic time’s news article about “How Demat Account Works”.
- Quora.com Question and answers.
- Kotak Mahindra article on “buying and selling through Demat account”