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.
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.