What is Delivery Trading?

Delivery trading is a form of stock market trading where shares are purchased and held in a demat account beyond the same trading day. Unlike intraday trading, where positions are squared off before market close, delivery trading allows traders to carry forward their holdings beyond a single day, often for several days or weeks, in order to benefit from larger price movements. 

In this blog, we will explore delivery trading in detail, including how it works, the advantages and disadvantages, the charges involved, and the rules that protect investors.

Delivery Trading: An Overview

In the simplest terms, it is the process of buying shares of a company and holding them for more than one day. When you do delivery trading, the shares you buy are stored electronically in a special account called a Demat account.   

Once the shares are in your Demat account, you become a part owner of that company or the shareholder of the company. You can hold these shares for as long as you want a few days, a few weeks, or several months. In delivery trading, the objective is not to earn quick profits but to benefit from broader price movements identified through patterns or technical indicators over a longer horizon.   

How Delivery Trading Works?

The process might sound technical, but it’s quite straightforward. Let’s follow the process of delivery trading in detail.

1. Order Placement : You log into your stockbroker’s app (like Pocketful). You search for a company you have analyzed, decide how many shares to buy, and most importantly, you select the ‘Invest’ option for the shares. For this, you must have the entire purchase amount available in your trading account.   
2. Exchange Matchmaking : Your buy order goes to the stock exchange (like NSE or BSE). The exchange’s electronic order book matches your buy order with sell orders at the best price and your trade is executed.   
3. T+1 Settlement : In India, exchanges follow a T+1 settlement cycle. ‘T’ stands for the trading day. So, T+1 means one working day after the trade has been executed.    
4. Shares Credited in Your Demat Account : On the T+1 day, the money for the shares is debited from your trading account. In return, the shares are officially transferred and credited to your Demat account. Congratulations, you are now the owner of those shares   

This T+1 system is a safety feature introduced by SEBI, our market regulator. It means you get your shares faster when you buy, and you get your money faster when you sell, making the whole system safer and more efficient for retail investors like you.   

Read Also: Difference Between Intraday Trading and Delivery Trading

Advantages and Disadvantages of Delivery Trading

Advantages

1. Real Ownership : This is the biggest benefit, as a shareholder you get certain perks. If the company makes a profit, it might share some of it with you as ‘dividends’. You may also get bonus shares and have the right to vote in important company decisions. You don’t just own the stock, you own a piece of the company .   
2. Potential Wealth: Delivery trading can be a strong path to wealth creation. As good companies grow, their stock prices often follow. By holding shares for longer periods, you position yourself to capture significant price movements, which can transform a relatively small investment into a much larger return.   
3. Less Stressful : You don’t need to be monitoring the screen all day watching prices go up and down. Since you are in it for the long run, daily market noise doesn’t affect your stock much. This makes it a calmer, less stressful way to invest, perfect for students or working professionals.   
4. Lower Costs : In delivery trading, you incur fewer charges since you buy and hold. Whereas, an intraday trader might make 10 trades a day, while you might make only 10 trades a year. This results in much lower overall transaction costs in the long run.   
5. Tax Benefits : If you sell your shares after holding them for more than one year, the profit you make on it is called a Long-Term Capital Gain (LTCG). In India, LTCG is taxed at a lower rate compared to profits from intraday trading, which is considered business income and taxed at your personal income tax slab rate.   

Disadvantages

1. Full Payment Upfront : You have to pay 100% of the money upfront. If you want to buy shares worth ₹50,000, you need to have ₹50,000 in your account. You don’t get the high leverage or loans that intraday traders have access to.   
2. Stagnant Investment : Since you hold stocks for a long duration, your capital is locked. This means you might miss out on other good investment opportunities that pop up because your money is tied up. This is known as the opportunity cost.   
3. Market Risks : While you avoid daily ups and downs, you are exposed to long-term risks. A bad decision by the company, an economic crisis, or a change in government policy can cause your stock’s price to fall over time.   
4. Patience : This is not a get-rich-quick scheme. Returns in delivery trading can take months or even years to show. It requires a lot of patience and discipline to not sell in panic during market corrections.   
5. Higher Taxes: The Securities Transaction Tax (STT), a tax you pay on every trade, is higher for delivery trades compared to intraday trades. While you trade less often, the tax on each sell transaction is higher.   

Steps to Start Delivery Trading

Here’s a simple guide on how to start delivery trading in India : 

Step 1: Documentation –

You will need three basic documents, your PAN card, your Aadhaar card (make sure it’s linked to your mobile number), and your bank account details (like a cancelled cheque or a bank statement).   

Step 2: Choose a Stockbroker –

A stockbroker is necessary to participate in the stock market. Choose a SEBI-registered broker like Pocketful.

Step 3: Open a Demat and Trading Account –

This is a fully online process and takes just a few minutes. You will fill a form, upload your documents, and do a quick video verification. For example, Pocketful helps new users to open Trading and Demat accounts free of cost.   

Step 4: Add Funds –

Once your account is active, transfer money from your linked bank account to your trading account. You can easily do this using UPI or net banking.   

Step 5: Do Your Homework –

Don’t buy a stock just because your friend told you to; do your own research. Read about the company, its fundamentals, what it does, and how it has performed in the past. Choose companies with strong fundamentals.   

Step 6: Place Your First Order –

Log in to your trading app, find the stock you want to buy, specify quantity and tap ‘Buy’. Enter the number of shares you want, and remember to select the ‘Invest’ option. Once you confirm, the order is placed. 

Delivery Trading Charges 

A common point of confusion for beginners is the cost of trading. Many brokers advertise zero brokerage on delivery trades. But that doesn’t mean delivery trading is completely free, as you still have to pay GST, exchange transaction charges, etc. Here’s a simple breakdown of delivery trading charges:

• Brokerage : This is the fee your broker charges. For delivery, many popular brokers charge ₹0.   
• STT (Securities Transaction Tax) : A tax paid to the government on both buying and selling. For delivery, it’s 0.1% of the transaction value.   
• Exchange Transaction Charges : A small fee charged by the stock exchanges (NSE/BSE) for using their platform.   
• GST : 18% tax on your brokerage, transaction and other associated charges.   
• DP Charges : A flat fee charged only when you sell shares from your Demat account.      

Delivery Trading Rules

The Indian stock market is well-regulated by SEBI to protect small investors. Here are a few important rules of delivery trading that act as your safety net:

• T+1 Settlement : Ensures you get your shares or money quickly and reduces risks in the system.   
• Mandatory Demat Account : All your shares are held safely in an electronic format, eliminating the risk of theft or damage associated with old physical share certificates.   
• Direct Payout : This is a new rule where shares can be credited directly to your Demat account from the exchange, reducing the broker’s role. This was done to prevent misuse of client shares by brokers, making your investments even safer.   

Read Also: Different Types of Trading in the Stock Market

Conclusion

Delivery trading is a powerful, time-tested approach for building wealth patiently. It is generally more suitable for beginners because it encourages research, discipline, and a long-term mindset. It is less about timing the market and more about time in the market.

Ultimately, the best trading approach for you depends on your financial goals and your risk appetite. It is advised to consult a financial advisor before trading in the financial markets.

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