A dematerialised or Demat account is an online account that helps you keep track of your securities, like shares, mutual funds, and bonds in a single platform. This platform also reduces the need for physical certificates that minimises the loss or damage of securities.
A Demat account allows you to see your balance for trading securities. Read this blog to become aware of the basics of a ledger balance in Demat account and how it can help you plan investment strategies.
Understanding the Ledger Balance in Demat Account
When you open a Demat account, it is crucial to understand what is ledger balance in Demat account. A ledger balance refers to the inflow and outflow of funds from the Demat account of investors. Just like a bank account statement, a ledger balance statement records the daily transactions like receipts and payments.
These inflows and outflows include dividend payouts, fund transfers to another Demat account, and the amount received from selling securities. A ledger balance also allows you to see the interest received, and charges levied from depositories or the Depository Participant (DP).
You may access a ledger balance in your Demat account using the below options:
- Online portal or application of the broker or the DP.
- SMS or email alerts from the broker or DP.
- Physical or electronic statements from the DP or broker.
- Customer care services by the DP or broker.
You must regularly keep track of your ledger balance and make reports if there are any discrepancies to your DP or broker.
Difference Between Ledger Balance and Trading Balance in Demat Account
While understanding what is ledger balance in Demat account, investors often get confused about the ledger balance and the trading balance. The below table demonstrates the differences between ledger balance and trading balance in a Demat account:
| Ledger Balance | Trading Balance |
| A ledger balance is an updated balance that showcases the final status of the securities in a Demat account. | It refers to the number of securities bought or sold, but not settled yet. The settlement of these securities takes some days after a trade. |
| It provides a brief description of your financial health. | It provides a hint about the financial well-being of your future. |
| Important to reflect on your present financial situation. | The trading balance is crucial for planning for future financial obligations. |
Calculation of Ledger Balance in a Demat Account
The calculation of ledger balance in a Demat account is very simple. The formula for calculating a ledger balance is:
Ledger Balance = Opening Balance + Credits/Deposits – Debits
You should take the opening balance of your Demat account, which is the amount of money you have in your Demat account at the beginning of a trading day.
Then, you have to add your credits or deposits. Credit is the amount of money you receive after selling securities, while deposit means the money you have added to your Demat account on a particular trading day. Finally, you have to subtract the debits from the opening balance. Here, the debit is the money used to buy securities or meet other expenses.
Significance of a Ledger Balance in Demat Account
The ledger balance in Demat account plays a crucial role while making investments and pledging securities. The significance of this ledger balance is described in the below points:
- It allows you to plan investment strategies and make appropriate budgets.
- It will also help manage your cash flow and liquidity options.
- Monitoring your income and expenses from securities can be performed with a ledger balance.
- You can also avoid overdrafts or any penalty with the help of this ledger balance.
- A ledger balance also allows you to comply with regulatory and tax obligations.
- Furthermore, the ledger balance is significant while pledging securities. You can use your Demat holdings as collateral to get loans or other credit facilities with the help of pledging.
Understanding a Negative Ledger Balance in Demat Account
A ledger balance in Demat account can be positive, zero and even negative. It is a simple calculation that a positive ledger balance denotes that you have surplus funds in your Demat account. You can utilise them to purchase securities or transfer to your bank account.
However, if you have a deficit in your Demat account or have inadequate funds to buy securities, it can be considered a negative ledger balance. You can cover it by adding funds from your bank account or selling securities. Nevertheless, a zero ledger balance means you have no funds in your Demat account.
Factors Determining Ledger Balance in a Demat Account
The ledger balance in Demat account differs from the trading balance or the available balance. The main difference between a trading balance and a ledger balance is that a ledger balance can increase or decrease from the trading balance, based on the below factors:
- The limit on trading or the exposure allowed by the broker or DP.
- The margin benefit or the collateral value offered by the DP or broker.
- Margin requirement or haircut put in by the DP or broker.
- The pay-in and pay-out dates or the settlement cycle of securities.
Final Thought
A ledger balance in Demat account shows the inflow and outflow of funds from the Demat account. It helps investors to keep a record of daily receipts and payments from your Demat account. A positive ledger balance means investors have sufficient funds in their Demat account, while a negative ledger balance means they have a deficit in their Demat account.
Do you want to start investing in the securities market? Download the Torus Digital application and open your Demat account for free! You also do not have to pay a single charge for annual maintenance.
