What is equity delivery?
Worlds like equity delivery or equity market delivery are normally used interchangeably for equities. Actually, they are one and the same. To understand what is equity delivery, think of a buyer of stocks. Delivery is about buying a stock in the trading account, paying the full amount then getting it transferred to your demat account. Equity delivery trading is considered the core of long term wealth creation.
Equity delivery?
To understand equity delivery meaning, let us go back to the idea of buying shares in the stock market. You have two options. You can either close it intraday i.e., either selling what you bought on the same day or by buying back what you sold on the same day. That is intraday trading and the opposite of that is equity delivery trading.
In an equity delivery, you buy shares of companies after doing your research or on the basis of the recommendation of your broker/advisor, and hold these shares in your demat account as equity delivery for some time. Once equity delivery is done, you can hold shares for as long as you want.
However, unlike intraday trading where you trade on margin, in the case of equity delivery or equity delivery trading, you must pay up the full amount latest by T+1. That presupposes you have adequate funds in your account and the funds are without any encumbrances to be able to pay the full amount to be invested. Coming back to our question of what is equity delivery; it is about paying the full money and taking the shares into your demat account. How long you hold the shares in demat account is up to you.
Advantages of equity delivery?
There are some distinct advantages in equity delivery trading. Let us summarize few of them.
- On a comparative basis, equity delivery trading is less risky compared to intraday trading as the risk of volatility in short period reduces.
- The very equity delivery meaning is that it is for the long term and hence that is more conducive to wealth creation as equities typically create wealth in the long run.
- Equity delivery adds to you wealth and it is also possible to borrow money at a future date against shares held as equity delivery in your demat account.
- Equity delivery allows you to play the big attractive stocks and sectoral themes, which are not possible in the case of short term intraday trading.
What is trading account?
Just as a demat account holds your equity investments and other securities, you transact equities in the Trading Account. For example, the trading account is mandatory if you want to buy or sell shares, either for intraday or for equity delivery. You can directly buy or sell shares from and into your demat account. It has to be only routed through the trading account route, except in case of IPOs and bond allotments which happen directly.
Trading account is your single point account with the broker to execute all kinds of transactions in equity delivery, intraday trading, futures trading, options trading, currency trades etc. It is interesting to note that only equity delivery trades result in debits or credits to your demat account. Intraday trades, future and options trades and currency derivative trades are settled in the trading account itself.
The trading account is like a flow account. Here is how it is linked to your demat account and bank account. When you buy shares, you fund the trading account from your bank account. Trading accounts have to be funded in advance. Once you buy shares and get delivery, the shares as equity delivery into your demat account on T+2 day. When you sell shares, the demat account, the trading account executes the trade, the demat account gets debited on T+1 day and the bank account gets credited with the funds at the end of T+2 day. That is how the relationship between trading account, demat account and bank works.
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Frequently Asked Questions
When you plan to buy shares for equity delivery, the order must be placed in the trading account, either in your online trading account logged in your laptop or the app on your mobile. You need to specify that it is a cash-and-carry order and select the CNC option while placing the order. In such cases, you have to pay the full margin for the delivery. Once the order is placed, check in the order book and confirm with the trade book if the deal is executed. Once it is done, on T+2 day, the shares are automatically credited to your demat account. It is always advisable to regularly review and verify your contract notes.
Brokerage is charged by the broker for the service of executing the trades and for clearing and settling the trades on behalf of the client. Brokerage rates vary and will depend on the product wise brokerage rates that you agreed to when signing the client broker agreement. Normally, the delivery brokerages are higher compared to intraday and F&O brokerage but that situation has now been reversed by many zero-cost discount brokers who offer delivery free of brokerage but charge for intraday and F&O trading.
T+2 means that when you buy, you get delivery of shares on T+2 day i.e., two working days after the trade date. Similarly, when you sell shares, you get the fund credit by the end of T+2 day. That is the day when the clearing and settlement for regular transactions are closed.
Brokerage normally applies on both sides but brokers do offer one-side brokerage to large clients for intraday or a lot-wise brokerage for options. You must check the client member agreement signed with the broker.