Bank account Vs Demat account

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A demat account and a bank account serve different purposes and have distinct features and each serving its distinct purpose in the overall financial ecosystem.

About Bank Account Vs Demat Account

  • Bank account
    • Purpose: It is a bank account used for storing and managing money. It facilitates various financial transactions such as deposits, withdrawals, transfers, bill payments, and online transactions.
    • Types of Assets Held: It holds funds in the form of cash, which can be deposited, withdrawn, or transferred as required. Some bank accounts may also hold fixed deposits, savings certificates, or other financial products offered by the bank.
    • Regulatory Authority: Bank accounts are regulated by banking regulators such as the Reserve Bank of India (RBI) in India.
    • Transactions: It involves deposits, withdrawals, transfers, and payments. Customers can use various channels such as ATMs, online banking, mobile banking, and cheques to conduct banking transactions.
    • Interest and Returns: Bank accounts may earn interest on the funds deposited, depending on the type of account and prevailing interest rates. Some bank accounts also offer rewards or cashback on transactions.
  • Demat account: It serves as a secure digital vault for holding various securities. It stores securities in electronic format, a process known as dematerialisation, effectively converting physical shares into digital assets.
    • Purpose: A demat account is primarily used for holding and trading securities such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) in electronic form. It allows investor to buy, sell, and transfer securities seamlessly.
    • Types of Assets Held: Securities held in a demat account are in electronic or digital form. These include stocks, bonds, debentures, mutual fund units, government securities, and other financial instruments.
    • Regulatory Authority: These are regulated by securities market regulators such as the Securities and Exchange Board of India (SEBI) in India. Depositories like the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) oversee the functioning of demat accounts.
    • Transactions: It involves buying, selling, and transferring securities. Investors can trade securities on stock exchanges through their demat accounts.
    • Interest and Returns: Demat accounts do not generate interest or returns on the securities held in the account. Returns are generated based on the performance of the securities held.

Q1: What is a security in a financial context?

It is a certificate or other financial instrument that has monetary value and can be traded. Securities are generally classified as either equity securities, such as stocks and debt securities, such as bonds and debentures.

Source: How is a demat account different from a bank account? Here are the key distinctions