Although clearing and settlement is a very theoretical subject, it is important to understand the process behind it. As a trader or investor, you do not have to worry about how your deal is getting cleared or settled, because a good intermediary is doing this work and you do not even know about it.
But if you do not understand this, then your information will be incomplete, so we will try to understand the topic that what happens from buying shares to coming into your Demat account.
What happens when you buy shares?
Day 1/ T Day, Monday
Suppose you bought 100 shares of Reliance Industries on June 23, 2014 (Monday) at a price of Rs 1000. The total value of your transaction is Rs 1 lakh (100*1000). The day you make this deal is called Trade Day or T Day.
By the end of the day, your broker will charge you Rs 1 lakh plus whatever fees it is. Suppose you do this transaction on Zerodha, then you will have to pay the following fees or charges:
| No | Types of Charges | How Much Charge | Amount |
|---|---|---|---|
| 1 | Brokerage | 0.03% or INR 20 | 0 |
| 2 | Security Transaction Charge | 0.1% of the turnover | 100/- |
| 3 | Transaction Charge | 0.00325% of the turnover | 3.25/- |
| 4 | GST | 18% of the brokerage + Transaction Charge | 0.585/- |
| 5 | SEBI Charge | INR 10 / 1crore transaction | 0.1/- |
| कुल | 103.93/- |
So with one lakh rupees, you will have to pay a fee of Rs 103.93, the total amount of Rs 100,103.93 will be withdrawn from your trading account. Remember that the money has gone out but the shares have not come into your Demat account yet.
On the same day, the broker prepares a contract note for you and sends its copy to you. This note is a kind of bill, which gives complete information about your transaction. This is an important document and will come in handy in the future. The contract notes usually contain all the trades that took place on that day along with their trade reference numbers. Also, the information about all the fees charged from you is there.
Day 2/2 – Trade Day + 1 (T+ Day), Tuesday
The next day after the day you made the deal is called T+1 Day. On T+1 day you can sell your shares, which you have bought on the previous day. This type of deal is called BTST-Buy Today, Sell Tomorrow or ATST- Acquire Today, Sell Tomorrow. Remember that the shares are still not credited to your Demat account. This means that you are selling such shares, which have not been owned by you yet. There is a risk in this. Although not every BTST transaction carries risk, but if you are dealing in B Group shares or shares that are rarely traded, you could be in trouble. Let us leave this whole issue here for now.
If you are new to the market, it would be better for you to stay away from BTST as you do not fully know the risks involved.
Apart from this, T+1 day has no special significance from your point of view, although the money and all the fees paid to buy the shares are reaching the right place.
Day 3/3 – Trade Day + 2 (T+2 Day), Wednesday
On the third day i.e. T+2 day at around 11 o’clock in the day, the shares come out of the account of the person who sold you shares and comes to your broker’s account, and the broker sends the same shares to your account by evening. Similarly, the money that was withdrawn from your account reaches the account of the person who sold the shares to you.
Now the shares will be reflected in your Demat account. You will now have 100 shares of Reliance.
In this way, the shares purchased on T Day will come to your account on T+2 day and will be able to renegotiate them on T+3 Day.
What happens when you sell shares?
The day you sell the shares is called Trade Day, and it is written as T Day. As soon as the shares are sold, that number of shares gets blocked in your Demat account. These shares are given to the exchange before T+2 Day and the money received from the sale of those shares on T+2 Day, after deducting fees and charges, comes to your account.
Things to do in this chapter
- The day you trade is called the trade date, and it is written as T Day.
- At the end of that day, the broker gives, or issues, a contract note to you for all the transactions you make on T Day.
- When you buy shares, they will be credited to your demat account at the end of T+2 day.
- All equity/stock settlement in India is done on T+2 basis.
- When you sell the share, that share gets blocked immediately and you will get the amount on T+2 day.
Gaurav Heera is a well known name in the field of stock market analysis and education. His distinguished career, which spans more than ten years, has cemented his reputation as an expert with unparalleled knowledge and innovative strategies for navigating the intricate landscape of the financial markets.
