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What Is Ledger Balance In Demat Account

What Is Ledger Balance In Demat Account

All You Need to Know About the Demat Ledger Balance  

As per SEBI guidelines, every Indian must have a Demat account if they want to trade shares and securities. It is advisable to have one in the bank of which they are a customer, for the documentation work is significantly lower. 

However, investors can also open a Demat account in brokerage firms and financial institutions. A Demat account holds all the shares, debentures, and other securities of the individual in an electronic format. The Demat account may have an available or ledger balance.

So, what is a ledger balance in the Demat account? The bank or any other organization where the investor opens a Demat account computes the ledger balance at the end of the day. It includes all the cash receipts and payments concerning shares and other securities the investor holds, the withdrawal, and the addition thereof during one working day. The balance thus calculated will be the opening balance for the next working day. 

Example

Businesses, irrespective of their size, maintain a book to record their daily transaction in which they record every expense, however trivial it may be. Spreadsheets and accounting software have now replaced accounting books. Demat practice is a comparatively recent requirement for investors and is like the ledger book but in an electronic form.

The spreadsheet will record all income and expenses, including transfer of funds, payment receipts from sales, payouts, incur of charges, purchase payments, and any transaction that can alter the ledger balance in the Demat account. The ledger may be a general ledger that holds all trades or a formalized ledger with a specific entry on each page. 

Takeaway

The ledger balance in the Demat account is an organized electronic array of files with a complete record of all debit and credit about securities. The ledger balance contains all information on separate pages so investors can quickly find any earning or spending detail relating to a particular date or account. 

Ledger Balance–Meaning

The ledger balance's meaning represents the inflow and outflow of cash from an investor's Demat account. It is a daily update of all payment receipts and bills on a total running basis.

It lists the details of the cash transfers to another Demat or bank account, payouts such as dividends, or other compensations received by selling or holding securities. In short, it contains every detail that can impact the cash balance of the Demat account.

Example

The ledger balance of a Demat account is similar to the bank account statement that records the daily cash receipts and payments. The only difference between the two is ledger balance is for a Demat or broking account. 

Understanding the Working of Ledger Balance 

After approving and processing all the transactions of the day, the bank or financial institution that houses the Demat account enters them all in the ledger. The transactions thus entered are total or on either side (debit and credit), and the debt is deducted from the credit to derive the ledger balance.

The transactions include:

  • Deposits.
  • Inbound and outbound wire transfers.
  • Remittance through cheque after clearance.
  • All transactions via debit or credit card.
  • Any rectification entries if necessary.

The ledger balance represents the account balance at the start of the next business day. The funds are accessible by the account holder only after the ledger balance in the Demat account reflects the same. There could be delays in processing deposits or funds inflow because, per the exchange requirements, the bank must receive funds from the cheque issuer. 

The ledger balance is a date-wise record and will only report transactions and bank receipts of the day. The statement ensures that the account holder maintains a minimum balance.

Can the Ledger Balance Be Negative?

The exchange rules provide for carrying forward derivative positions with collateral margins. However, per the requirements, all Mark-to-Market (MTM) payments need cash. In case of an MTM loss, the ledger balance will be negative. The investor will have to transfer funds to the account to make good the loss, failing which they will not be allowed to trade in equity intraday, F&O positions (NFO and CDS).

In such a situation, the bank or broker will block the investor from trading, so when they try to trade, they will receive an error message alerting them of the shortfall. Suppose the bank or broker fails to block the Demat account from trading in such a situation. They will have to cover the expenses of the new derivative positions the investor gets into, which is illegal. 

What Are Delayed Payment Charges?

The bank or broker may charge delayed payment charges at 0.5% daily or 18% a year towards interest on debit accounts and 0.035% daily or 12.775 annually when the Demat account holder fails to maintain the cash margin requirement. Delayed payment charges are when :

  • The ledger reflects a debit balance if the account holder's spending exceeds the available balance. 
  • The Demat account has insufficient funds to cover charges. 
  • Excessive use of non-cash equivalent collateral margin.

The exchange guidelines require a 50% margin in cash or cash equivalents and a non-cash margin collateral margin of the remaining 50% for overnight Future and Options positions. In case of a shortfall, the non-cash collateral covers the same and will charge delayed payment charges to the account holder.

Example

Raja's ledger balance is INR 2000. He has INR 2000 as collateral margin from securities. Suppose he takes a margin up to INR 4000. The broker or bank will debit him for the amount, and his ledger balance will reflect a negative of -2000. He will not have to pay the delayed payment charge as the collateral covers the deficit. 

Conclusion

Ledger balance is the total sum available to the investors to take up margins or invest in securities. However, it is advisable to ensure the available cash ledger balance by adding funds to the Demat account.

FAQ

Is it possible for me to withdraw funds from the ledger balance?

The Demat trading account serves as a link between your Demat account and your bank. You can only cash the proceed from the sale of securities. You will receive specific money as a brokerage for trading leverage purposes. 

This amount will be displayed on your account but is not transferable. When you withdraw from your Demat account, the amount is immediately deducted from the ledger balance. But you cannot directly transfer funds from a Demat account. Transfers are only via a Demat trading account.

Does a Ledger Balance make me a debtor?

Not all the money in your bank account may be available for use. For instance, your bank might still need to clear checks or payments for your purchase of securities or charges incurred in purchasing and selling them.

The available balance is the ledger balance minus the expenses for any day-to-day transactions or the total amount of money coming in and out of your account. It is better to clear all outstanding payments before transferring funds from a Demat account to avoid a negative ledger balance.

How do the ledger balance and available balance differ from each other?

After accounting for the previous night's financial operations, the ledger balance represents the final sum. On the other hand, the available balance is a mix of the ledger balance and all other electronic transactions. 

It is critical to grasp these two amounts' differences to avoid overdrawing. In short, the difference between the ledger and the available balance is how much money you have on hand once all outstanding transactions are sorted.

What is the procedure to check the ledger balance in the Demat account?

View the most recent financial transfers. Activate the Ledger Balance button under the Transaction History Tab. For convenience, filters like date range and segments are included. Click on the tab labeled "View All Funds Moved to your account" to view transaction details.

Can I affect a physical settlement by pledging Liquid BeeS?

You must have F&O margins in pledged collateral or cash if you must affect a physical settlement. You can thus opt for a physical settlement of your open F&O stock positions to your Demat account even though you have no cash but have pledged appropriate collateral. But you must remember that the physical settlement value and charges will cause your ledger cash balance to become negative.

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