Understanding the Meaning of Fund Balance in Demat Accounts and its Importance
Have you started investing in the Indian stock market? If yes, you must have a trading and Demat account in your name. Both accounts are mandatory for stock market investors in India.
While using a Demat account, you must understand the different elements. Security balance, fund balance, maintenance fees, and brokerage charges are some concepts associated with a Demat account. Individuals who haven’t started investing in the share market should also know these concepts.
Read on to understand the meaning of fund balance and its importance.
Are you Familiar with the Working of Dematerialisation Accounts?
Before we get to the Demat account fund balance, you must understand the working of a Dematerialisation account. A Demat account is an investment account that allows you to hold financial instruments. Equity shares, ETFs, bonds, derivatives, mutual funds, futures contracts, and many other securities are held by a Demat account. A Demat account stores these instruments securely in digital format. Without Demat accounts, traders would have no option but to store securities physically. For example, you would be keeping stock certificates without a Demat account. You mustn’t confuse a Demat account with a trading account in India. Both financial accounts have diverse objectives in India.
A trading account buys and sells financial instruments like shares and bonds. On the other hand, a Demat account is used for holding financial instruments. However, a few financial instruments can be accessed via your Demat account, but not all. To get a Demat account, you must connect with a depository participant or brokerage firm in India. Your Demat account provider will levy a few charges for their services. You must enquire about the Demat account charges for transparency with your broker. The broker might apply maintenance charges, brokerage fees, and other charges for Demat account services. It is crucial to note that your Demat account will be linked with the trading account for effortless transfer of financial instruments.
Are you Familiar with Demat Account Fund Balance?
On opening your Demat account, you can check the owned securities. The Demat account will also display the fund balance, which is the available cash balance for purchasing securities and paying charges. One should not confuse the fund balance with the security balance of the Demat account. Fund balance refers to the cash balance, whereas security balance refers to the collective value of all securities in the Demat account. The security balance will include the value of shares, bonds, commodities, and other securities stored in your Demat account. Here is how the fund balance of your Demat account is used:
- Demat account fund balance includes your earnings from corporate actions. For example, you might receive dividends from the companies in your portfolio. These dividends are stored in your Demat account as a fund balance.
- You can utilise the fund balance in your Demat account to buy securities like shares, bonds, and derivatives.
- The returns will be stored as a fund balance in your Demat account when you sell securities. These funds are available for future investments via your Demat account. You are also allowed to withdraw the fund balance amount and use it for other purposes. The process of fund withdrawal from Demat accounts might change for each broker or depository participant.
- The fund balance can be used to pay Demat account charges. For example, you can pay the AMC (Annual Maintenance Charge) to the depository participant or broker via your account’s fund balance.
- Many brokers allow traders to transfer fund balances into their respective bank accounts. Since the Demat account is linked with a bank account, the fund balance can be transferred.
In a Nutshell
It is essential to understand how the fund balance of a Demat account works. Then, you can choose Religare Broking to open a Demat account for free and pay fewer brokerage charges. You will not experience any hidden costs with a reputed broker like Religare. Learn more about the fund balance of your Demat account now!
Read More :- Factors To Consider Before Opening A Demat Account In India