Benefits of Multiple Demat Accounts

Margesh Rai

01 Jul, 2024

An exponential rise is observed in the post-pandemic for the opening of multiple demat accounts in India. Generally, the opening of multiple Demat accounts requires consideration of mandatory eligibility criteria for the investors to enjoy the benefits. The investors freely enjoy the benefits of multiple demat accounts for both trading as well as investments in India.

Historical Overview of Demat Accounts

The National Securities Depository Limited Act of 1996 has established a strong foundation for the Dematerialisation of Shares & Debentures.

The Depository holding shares in the fiduciary capacity appoints different intermediaries (Depository Participants) to open and maintain investors’ Demat accounts.

What is a Demat Account?

A Demat account is a dematerialized account that assists investors in holding shares, securities, mutual funds, and insurance in electronic format. Opening a Demat account is the first step required to carry out a purchase in the stock exchange.

Also, a Demat account is connected with a trading and bank account for carrying out trade and investment-related activities. Every Demat account is a gateway to investment in the stock market.

Rapid Rise in Number of Multiple Demat Accounts

A significant rise is observed in the number of Demat accounts in India. The multiple Demat accounts use more than one savings account to diversify investment by saving money in different accounts. Opening of multiple Demat accounts is facilitated through another broker.

Depositories hold dematerialized securities through which the trader or investor operates multiple Demat accounts. The Securities and Exchange Board of India doesn’t impose limitations on the opening of multiple Demat accounts in India.

Things to Keep in Mind Before Opening Multiple Demat Accounts

Some of the mandatory things must be kept in mind before the opening of multiple Demat accounts in India. However, the following are mandatory considerations required for opening multiple demat accounts:

• Each broker can only open one Demat account;
• Every demat account must be opened with a different depository participant;
• Traders can use one demat account for trading and another for investing purposes;
• Annual maintenance charges or AMC are permanently attached for the maintenance of the Demat account;
• Mandatory to link multiple Demat accounts with the PAN Card of the broker;
• Full-time or discount brokers are only authorized to open multiple Demat accounts.

Requirement for Multiple Demat Accounts

The requirement for Multiple demat accounts depends upon individual or investment goals as specified. The following are common requirements for having multiple demat accounts in India:

• Ensures management of securities without confusion;
• Provides diverse perspectives for buying and selling of stocks;
• Ensures a path for short-term and long-term investment goals.

What are the Benefits of Multiple Demat Accounts?

Various benefits attract investors for having multiple Demat accounts in India. The following are the top benefits of multiple demat accounts:

1. Portfolio Segregation

   Having multiple demat accounts assists in the efficient segregation of trading and investment portfolios. Portfolio segregation means maintaining separate short-term trading and long-term investment accounts for convenient monitoring of assets and rebalancing of portfolios.

2. Easy Tracking

   Holding multiple Demat accounts ensures easy tracking of securities transactions for long-term investors and traders.

3. Manages Trading Account

   Opening multiple demat accounts doesn’t require holding multiple trading accounts for broadening and managing the trading process for traders.

4. Usage of Several Interfaces

   The multiple Demat accounts with different Depository Participants attract the benefits of various interfaces offered by different brokers based on their preferences.

5. Diversification of Investment Portfolio

   Opening multiple demat accounts enables diversification of the investment portfolio, which beneficially manages the various types of assets and allows organized storage with segregated demat accounts.

   In case of an investment in IPO can be done through one Demat account, simultaneously, debt government securities can also be kept under another Demat account.

6. Monitors Securities and Systematic Investment

   Opening multiple Demat accounts allows monitoring of securities and investment in a systemic way. The monitoring of securities and systematic investment ensures the categorization of securities while maintaining investment portfolios. 

7. Access to Market Insights

   Having multiple Demat accounts facilitates easy access and insights from different brokers. This access to brokers’ market insight enhances the current trading and investment strategies.

8. Increasing Investment Potential

   Having multiple Demat accounts has led to the rising number of specialized investment potentials in different sectors (like technology & healthcare), and types of instruments (like stocks, bonds, and mutual funds).

   Easy access to initial public offerings and exclusive investment opportunities is secured by having multiple demat accounts in India.

9. Managing of Risks

   The next benefit of having multiple demat accounts ensures reducing and managing the risks of substantial loss on the investment activities associated with a single broker account.

   Simply, it eases out the portfolio tracking and performance evaluation of each account separately, making it easier to mitigate risks while operating multiple Demat accounts.

10. Broker Preference

    Opening multiple Demat accounts provides access to multiple brokerage firms and the services offered. Thus, it offers advantages to various brokers.

11. Differentiate Between Long-Term and Short-Term Investment

    Opening multiple demat accounts allows working with multiple brokers, which ensures differentiating between long-term and short-term investments.

12. Ensures Tax Efficiency

    The opening of multiple Demat accounts is beneficial for efficiently managing and optimizing the tax implications. Tax compliance with the law is secured through segregating long-term investment and short-term trading activities into two different Demat accounts.

Pros and Cons of Multiple Demat Accounts: Detailed Analysis

The table provided below outlines a detailed analysis of the pros and cons of opening multiple Demat accounts. The following pros and cons of operating multiple demat accounts must be duly considered:

Conclusion

Generally, the benefits of multiple demat accounts outweigh its disadvantages. Simply, holding multiple Demat accounts is considered an excellent strategic move for holding a trading and investment account with multiple depository participants. Lastly, the consideration of the pros and cons of opening multiple demat accounts must be mandatorily reviewed when applying for investment plans through a Demat account.

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