Investing in the stock market requires access to both, Demat and Trading accounts. The primary objective of a Trading account is to help the investors purchase and sell shares. On the other hand, the Demat account acts as a repository to hold the shares in a dematerialized format. The advent of a Demat account benefitted investors by converting physical copies of share certificates into a digital format that can be stored online. Many brokers provide an online Demat account in the current times, and investors can pick the one that best suits their trading activities. The following brief aims to overview the advantages and disadvantages of holding multiple Demat accounts.
Before we look into the advantages and disadvantages of holding multiple Demat accounts, let us understand if investors have the option of owning multiple accounts. The short answer is Yes. Investors can keep multiple Demat accounts from different brokers if that suits their requirements. However, from the income tax perspective, trading activities from all accounts of an individual would be mapped against the same individual. While investors are allowed to hold multiple Demat accounts, the different accounts are linked to their respective PAN cards.
Advantages of holding multiple Demat accounts
Let us begin by taking a look at some of the benefits that multiple Demat accounts offer:
- Special offers: Many brokers provide Demat accounts, and each may have a unique service offering. Holding multiple accounts will enable the account holders to benefit from the special offers of each of these brokers. It could be discounts on brokerage fees, investment-related guidance, or any other brokerage-related activities.
- Organised portfolios for active traders: An active trader or stock market investor may have many holdings at once and may get a little out of hand to review and monitor these holdings using one account. Holding multiple accounts can help investors organize and streamline their portfolios.
- Applying for an IPO: Applying for an Initial Public Offering (IPO) has recently been quite profitable. However, an application does not necessarily guarantee an allocation of shares in the case of an oversubscribed IPO. Investors can increase their chances of getting an allocation by applying through multiple Demat accounts. Additionally, investors applying for an IPO should understand the difference between demat and trading account. A Demat account is mandatory when applying for an IPO.
Disadvantages of holding multiple Demat accounts:
Although holding multiple Demat accounts can seem advantageous, here is a study on some of the primary disadvantages associated with it:
- Account Maintenance Charges and other costs: While most brokers provide the Demat account opening free of cost, the account still incurs specific Account Maintenance Charges, also known as AMC. Holding multiple Demat accounts will incur additional AMC, which needs to be borne by the account holder. There could also be other maintenance charges associated with each account that the account holder must bear.
- Time-consuming: Managing multiple Demat accounts is a time-consuming affair. Account holders of multiple Demat accounts may spend additional time and effort managing, reviewing, and maintaining their accounts. Every Demat account comes with a separate interface which may take some time to get used to. Additionally, each Demat account may have different sets of portfolios. Holding multiple Demat accounts makes it difficult for investors to track all their holdings effectively. If you do not login into each of your Demat accounts regularly, you may even forget about a few of the stocks that you might have purchased.
- Optimum utilization / Inactivity: While opening a new Demat account is easy, ensuring that the investor understands and plans for utilizing the additional account is essential. Not being able to fully use the service or maintaining inactivity for a long period may incur additional costs to the account holders. Additionally, An inactive account for an extended period is also eligible to be frozen or deactivated as per the service providers’ policies.
Demat account holders can benefit by utilizing the different offers provided by the brokerage houses, have the flexibility of organizing their holdings across different accounts, or hold an edge in IPO allocation. Keeping multiple Demat accounts may also enable the account holders to access research across asset classes carried out by the brokerage houses. It can provide a holistic view to the account holder on various aspects of investment. However, the disadvantages may outweigh the advantages if the accounts are not handled efficiently.
Conclusion
Holding multiple Demat accounts is permissible and is at the discretion of customers. There are no penalties associated with holding multiple Demat accounts. It carries certain benefits when used with caution. However, one must also understand its disadvantages. The most significant disadvantage is the cost associated with each Demat account, which may consume a chunk of your earnings. Therefore, the investors are advised to run a thorough cost-benefit analysis before applying for multiple Demat accounts. In theory, the investor should hold one Demat account if it serves their purpose and can meet the investment objectives.
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