Demat account

Demat is short for dematerialised. A demat account holds your investments in digital form, so you never deal with paper certificates. You open one through a broker or an investing app, and it is where your shares and funds live.

What a demat account holds

Think of it as a bank account, but for securities instead of cash. It can hold shares you buy on the stock exchange, exchange-traded funds, bonds and government securities, and it can hold mutual funds too if you choose to keep them there. When you buy, the units land in your demat; when you sell, they leave it. Your bank account handles the money, and the demat handles the securities.

Why it comes with a trading account

A demat account on its own cannot buy or sell anything. To place an order you need a trading account, which connects to the stock exchange. Most brokers open the two together, along with a linked bank account, so money, orders and holdings move between the three. A buy order takes money from your bank, the trade goes through the trading account, and the shares settle into your demat, usually the next working day.

Opening one, and what it costs

You open a demat account online in a few minutes by finishing KYC with your PAN and Aadhaar. There is usually no charge to open it, but most brokers levy a small yearly maintenance fee, and some waive it on basic accounts. You can hold more than one demat account across different brokers, though keeping everything in one place is simpler to track, and easier for your nominee later.

You do not need one for mutual funds

This trips up a lot of beginners. You can invest in mutual funds without a demat account at all, by holding them in a folio directly with the fund house or through an app. A demat account is mainly for shares and ETFs that trade on the exchange. For the full walkthrough, read what a demat account is.