Several investors today want to get a sizable number of shares in fundamentally strong companies. Investing in stocks is a common practice to grow their investments substantially. However, many remain unaware of what is delivery trade in share market investing. A lack of understanding of the delivery process of assets is not good for an investor. The clearing and settlement process is very crucial. It entails some key steps. Earlier investors used to telephone their brokers and inform them regarding their requirements. Now, everything is mostly online. Everything is settled with a few clicks in your demat and trading account platforms. So, the delivery mechanism remains mostly unnoticeable. To understand it let’s first begin with what is delivery trade.
What is a Delivery
There are many types of strategies to trade in the stock market. Delivery trading is a pretty common one among them. Principally, it is closer to regular investing than short-term trading. In a delivery trade the shares get transferred to your demat account. The time interval of selling a stock after buying it does not matter. Also, there is no fixed time limit for selling the securities. If the securities are transferred to your demat account, it is considered as a delivery trade. After you place your order the stock exchange will try to find a match for it. When available, it will proceed with the order. Upon successful transaction, you will get the delivery of the stocks you purchased.
Delivery Settlement Mechanism Explained
As mentioned, if you execute a delivery order, you will receive them in your demat account. Usually, the delivery of securities takes place in two trading days. This is often referred to as T+2 trading days. To make it more simple for you let’s understand the whole process with an example. Below are the steps that take place in the clearing and settlement process.
- Let’s say an investor bought a stock on “T day”. Here, we must first make sure that the trading account has sufficient funds. One cannot execute the transaction, without the entire amount required to buy for the stock. At the end of trading on the “T day”, the stockbroker shall debit the requisite amount along with brokerage and statutory charges.
- In this stage, an investor would have purchased the stock. The due payment shall also be done. Yet, he will not find the stock in the asset list of his demat account. This is where the clearing and settlement process kicks in.
- The proof of transaction or trade is a contract note. It shall be generated and provided to you in digital form. This contract note is just like a bill. It is a confirmation from the broker. So, you will be assured that the transaction took place at the price you quoted and the required charges paid.
- A day after the trade took place, two important steps will take place in the delivery settlement mechanism. First, the money is debited from the investor’s bank account. The stockbroker will have to pay the exchange fees and securities transaction tax (STT) to the stock exchange.
- Now, the second and the most vital stage of the process starts. It is the T+2 day. The T+2 settlement period counts only the working days of the stock exchange. All holidays recognised by the exchange are omitted.
- On the second day, the transaction is actually finalised. Now the final stage of the clearing and delivery settlement process occurs. The shares of the stock purchased are debited from the seller’s demat account. Then, they are credited to the stockbroker’s account.
- Once your stockbroker receives the credit of the concerned shares, he shall first check if there are any pending debits in the buyer’s trading account. If there are no pending transactions, the shares are transferred to your demat account before the close of T+2 day. This will conclude the delivery settlement process.
Now, a buyer can find the shares in his demat account. Then, you can start trading these shares from the next day onwards.
Choose Reliable Stockbrokers For Faster Settlements
A crucial thing to note here is that a stockbroker has a key role to play in this process. So, it is wise to choose a reputed brokerage house known for its reliability. Also such firms can offer good demat and trading platforms which help in faster transactions. Firms like Share India, for instance, use robust technologies in their platforms. Latest software back the systems to enable smooth transactions. So, investors get timely delivery of their securities purchased. They also offer the best trading app which aids in executing transactions faster.
