Advantages and Disadvantages of Multiple Demat Accounts
When it comes to investing in the stock market, a Demat account plays a crucial role in holding your shares electronically. But did you know that you can open more than one Demat account? That’s right! Investors often wonder whether having multiple Demat accounts is a good idea or if it complicates their investment journey. This article will help you understand the advantages and disadvantages of owning multiple Demat accounts, using simple language to make it easy for everyone.
What is a Demat Account?
First of all, what exactly is a Demat account? A Demat (short for Dematerialized) account is where your shares are stored digitally after you purchase them. It’s like a bank account for your stocks, commodities, futures and options, and other securities.
Now, let’s move on to whether having more than one Demat account can benefit you or not.
Important things to know before opening multiple Demat accounts
A Demat account is like a digital repository where your shares, bonds, mutual funds, and other investments are stored safely in an electronic form. Just like you can have more than one savings account in different banks, people often ask, “Can I have more than one Demat account?” Yes, you can have multiple demat accounts. However, you cannot open multiple accounts with the same broker, also called a Depository Participant (DP). But you are free to open accounts with different brokers. Each account will be linked to your Permanent Account Number (PAN), which is mandatory as per SEBI rules.
At the same time, every Demat account requires costs such as account opening fees, annual maintenance charges, and transaction fees. These expenses are charged separately each time you open the account. Also, if you have not used an account for many months, it will get frozen, and you will have to pay a penalty to activate the account.
Advantages of Having Multiple Demat Accounts
1. Diversification of Investments
One of the primary reasons why people opt for multiple Demat accounts is to diversify their investments. You can easily categorize your investments. For example, you could use one account for long-term holdings like mutual funds and another for short-term trades. This helps keep things organized and ensures you can track your investments more efficiently.
2. Multiple Brokers, Better Features
Different brokers offer various features, tools, and trading platforms. By having accounts with multiple brokers, you can take advantage of each broker’s unique offerings. Some brokers like Findoc provide better research reports, while others could offer lower brokerage fees. Having multiple accounts allows you to use the best of what each broker has to offer.
3. Backup Plan in Case of Technical Issues
What if one of your broker’s platforms goes down at a crucial time? Having a second Demat account with a different broker can serve as a backup. This ensures that you don’t miss out on any important trading opportunities due to technical glitches on one platform.
4. Easier to Claim IPO Shares
Another advantage is that applying for an IPO (Initial Public Offering) becomes easier. Some investors open multiple accounts to increase their chances of getting an IPO allotment, as they can apply from more than one Demat account under different names (e.g., family members).
Disadvantages of Having Multiple Demat Accounts
1. Higher Maintenance Costs
While it’s convenient to have multiple accounts, it does come with additional costs. Each Demat account comes with annual maintenance charges (AMC), which can add up if you have more than one account. Make sure to check what each broker charges before deciding.
2. Tracking Becomes Difficult
Managing one account is straightforward, but keeping track of multiple accounts can become confusing. You’ll have to regularly check the holdings, transactions, and fees across different accounts, which could be time-consuming. If not monitored properly, you might even lose track of some investments.
3. Increased Paperwork and Compliance
Each Demat account requires KYC (Know Your Customer) formalities, and more accounts mean more paperwork. You’ll also need to comply with each broker’s regulations and keep an eye on tax obligations, as all trades and holdings must be reported correctly.
4. Possible Overtrading
Having access to multiple accounts might tempt you to trade more frequently, which can lead to overtrading. This increases the risk of making impulsive decisions that might not align with your long-term financial goals.
Can You Open Multiple Demat Accounts?
Yes, you can open more than one Demat account, but it must be with different brokers. However, you cannot open multiple Demat accounts with the same broker. Each account is tied to a unique Depository Participant (DP), which means each Demat account will be under the purview of a separate brokerage firm.
Who Should Consider Opening Multiple Demat Accounts?
Some investors find value in opening multiple Demat accounts, especially if they actively trade, invest in IPOs, or want to take advantage of different brokers’ offerings. But if you are a beginner or someone who prefers a straightforward investment approach, a single Demat account might be more manageable for you.
Limitations of Multiple Demat Accounts
Though the reply to “Can we have more than one Demat account?” is a resounding yes, there are some disadvantages you should keep in mind. The most important one is the extra cost. Every time you open a new demat account, you will need to pay maintenance fees and transaction charges. If you hold multiple accounts, these charges can reduce your overall returns.
Another drawback is the work involved in handling and monitoring several accounts. Various brokers support different trading platforms and mobile apps, and their layouts can be confusing when you are new to them. If you do not regularly track each account, some of them may even get frozen due to inactivity, leading to extra trouble and charges to restart. Therefore, while you can open multiple Demat accounts, it is important to manage them carefully.
Conclusion
Having multiple accounts can help you organise your investments, separate long-term holdings from short-term trades, and also get access to research and advice from different brokers. At the same time, multiple Demat accounts also mean more costs and more work to manage them properly. If you are planning to open multiple Demat accounts, always compare the charges, services, and features of different brokers before making a decision. This way, you can enjoy the benefits of a better organisation without losing too much money on fees.
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Frequently Asked Questions
No, you cannot open two Demat accounts with the same broker. As per SEBI rules, one PAN can be linked to only one Demat account with a particular Depository Participant (DP).
Yes, you can have 4 Demat accounts or even more, but each must be with a different broker. There is no upper limit on the number of accounts linked to your PAN.
Yes, you can link the same bank account to multiple Demat accounts. However, you must ensure proper management of funds and keep track of all transactions across accounts to avoid confusion.
Yes, it is completely legal to have more than one Demat account. SEBI allows investors to open multiple accounts, provided they follow the rules and link their PAN card with each account.
Yes, you can close or delete a Demat account at any time. You will need to submit a closure form to your broker and transfer or sell all securities before shutting down the account.