| There are a few basic requirements that need to be | | | | the Securities Transaction Tax (STT) will be incurred |
| in place before an individual can start the process of | | | | on such transactions. |
| buying, holding and selling shares. This document is a | | | | Bank account |
| basic guideline to explain these requirements. Please | | | | Needless to say, a Bank account is required for |
| note that this document does not provide any advice | | | | carrying out various financial transactions associated |
| on what shares to buy or what investment strategy | | | | with trading of shares. This is where the money on |
| suits an individual. This is a getting started guide for | | | | sale of shares will be credited or money for buying |
| individuals based on my own experiences. | | | | shares will be debited from. A normal Savings |
| The 3 basic things needed for getting started are: | | | | Account is enough and nothing additional needs to be |
| * Dmat Account | | | | done with the Bank account. |
| * Trading Account | | | | Trading process |
| * Bank Account | | | | Once the Dmat account, Trading account and Bank |
| Dmat Account | | | | account are in place, an individual is ready to start |
| A Dmat account is like a Bank Account, with the | | | | trading. While it is not necessary to have the Dmat |
| difference being that instead of cash, a Dmat | | | | account, Trading account and Bank account with the |
| account holds shares. So, if shares are bought, they | | | | same organization, I feel that having it with the same |
| are deposited into the buyers Dmat account and if | | | | organization offers additional convenience, especially |
| shares are sold, they are reduced accordingly from | | | | for individuals trading using the internet. The following |
| the Dmat account. The shares that are deposited to | | | | example of buying and selling using a Trading account |
| or reduced from the Dmat account are electronic | | | | on the internet illustrates the convenience of having |
| shares. For an individual wishing to trade in shares, it | | | | the Dmat account, Trading account and Bank |
| is compulsory to trade only in Dmat (dematerialized) | | | | account with the same organization. |
| shares. Physical shares cannot be traded. Dmat | | | | Buying shares: When an individual wants to buy a |
| shares have many advantages in terms of ease of | | | | share, he/she logs into the Trading account and |
| handling etc. | | | | specifies the details like the Company name, no. of |
| A Dmat account can be opened through most banks | | | | shares to buy and the price at which to buy. |
| and financial institutions, after filling up the required | | | | Depending on this information, the required amount |
| forms and providing identity and address proofs. The | | | | from the Bank account is set aside for this trade. |
| usual charges associated with a Dmat account are: | | | | When the desired price is reached, this trade is |
| 1. Account opening charges | | | | executed and the amount (after adjusting for |
| 2. Yearly charges for maintaining the Dmat account | | | | charges) is debited from the Bank account and the |
| 3. Recurring periodic charges for holding shares in the | | | | shares are credited into the Dmat account. |
| Dmat account | | | | If the Bank account had been with a different |
| 4. Other service charges based on transactions | | | | organization, then for carrying out this trade, it would |
| carried out. Usually, there are no transaction / service | | | | have been necessary to move the amount into the |
| charges when shares are bought. The charges will be | | | | Trading account. |
| levied when shares are sold. | | | | Selling shares: When an individual wants to sell a |
| The above charges may not be the same across | | | | share, he/she logs into the Trading account and |
| different service providers but a big part is likely to | | | | specifies the details like the Company name, no. of |
| be the same as regulatory agencies like Securities | | | | shares to sell and the price at which to sell. |
| and Exchange Board of India (SEBI) specify certain | | | | Depending on this information, the required no of |
| norms. | | | | shares from the Dmat account is set aside for this |
| Trading Account | | | | trade. When the desired price is reached, this trade is |
| A Trading account is required if an individual wishes to | | | | executed and the shares are debited from the Dmat |
| trade, i.e. buy and sell shares in the stock exchange. | | | | account and the amount (after adjusting for charges) |
| The 2 main stock exchanges in India are the National | | | | is credited to the Bank account. |
| Stock Exchange (NSE) and the Bombay Stock | | | | If the Bank account had been with a different |
| Exchange (BSE). A Trading account can also be | | | | organization, then after this trade, it would have been |
| opened with most banks and financial institutions, | | | | necessary to move the amount from the Trading |
| after filling up the required forms and providing | | | | account into the Bank account. |
| identity and address proofs. The actual trading can be | | | | Please note that apart from the charges that are |
| done by phone, internet or using transaction slips that | | | | levied by the Bank, the Dmat account service |
| are provided at the time of opening the account. | | | | provider and the Trading account service provider, |
| Personally, I have found buying and selling using the | | | | there will be additional government taxes like STT |
| internet fairly convenient. There are options to | | | | and Service Tax. Also, please make sure to read all |
| specify the price at which to buy or sell and it is easy | | | | the terms and fee details of the service providers |
| to track the status online. | | | | before opening any account and be aware of the |
| There is a brokerage charge that is incurred for both | | | | transaction costs involved with each transaction. |
| buying and selling of shares. This charge varies across | | | | Happy Trading! |
| different trading houses. Also, government levies like | | | | |