A Demat account is the first step to carrying out a purchase in the stock exchange. Once a Demat account is opened with a registered depository participant (broker), you can buy shares and other financial instruments online.
An investor can open multiple Demat Accounts with different brokers with a valid PAN card. The Securities and Exchange Board of India (SEBI) does not levy any limitation on opening more than one Demat account in India.
It is necessary that all Demat accounts are properly linked to PAN so that comprehensive data of all investments can get stored in the central database of SEBI. This is to ensure all financial holdings of an investor are tracked by SEBI through PAN only.
Multiple Demat accounts and legality
It is legal to open multiple Demat accounts. However, it is not allowed to open multiple Demat accounts with the same brokerage firm. One can open multiple Demat accounts with full-time brokers and discount brokers simultaneously.
Rules to know if you have multiple Demat accounts
- To open multiple Demat accounts, they must be established with distinct Depository Participants (DPs).
- If you intend to open multiple Demat accounts with the same DP, each account must be associated with a different account holder.
- Maintaining multiple Demat accounts incurs separate charges for each account. However, you may consider opting for a Zero Brokerage Plan.
- An Annual Maintenance Charge (AMC) is applicable for each Demat account, regardless of usage.
Things to know about opening multiple Demat accounts
- A trader can have multiple Demat and trading accounts. There is only one condition in this situation, you cannot open multiple Demat and trading account with the same stockbroker or same depository participant. You can only have one Demat and trading account with one stockbroker.
- Multiple Demat and trading account helps in maintaining the investment and trading portfolio differently.
- A trader should be aware of the charges which come with a Demat and trading account with different stockbrokers. The charges can be like AMC (Annual Maintenance Charge) which is charged by the broker to maintain the account from the backend.
- If a trader or an investor opens multiple Demat and trading accounts, he/she needs to be active on the same as brokers freeze the accounts if they will not be active for a longer time.
Additional Read: How to use demat
Requirement for multiple Demat accounts
For a person who is both a long-term investor and a trader, multiple Demat accounts will surely make it easy for him to keep a track of his transactions with the stock exchange. It is quite convenient for everyone to keep trading securities in one Demat account and other investment instruments in another Demat account.
Some traders may want to store their investments separately based on their goals, terms, stock type, stock exchange, etc. Multiple Demat accounts will surely help them to manage their securities without any confusion.
Additional Read: Transfer share from one demat account to another
Advantages of multiple Demat accounts
- Multiple research reports - By opening different Demat accounts with different brokers, you can simultaneously avail of the services of different brokers. You can access a variety of research reports that will be helpful to trade more efficiently. You can also get exposure to multiple trading platforms.
- Easy tracking - Multiple Demats facilitate segregating trading portfolios and investment portfolios thereby making it easy to keep a track of transactions.
- One Trading account - It is not necessary to open multiple trading accounts to have multiple Demat accounts. You can link one trading account with multiple Demat accounts.
- Easy tracking - The goal of intraday trading is not to own the stocks, it’s rather to make profits by reaping the benefit of price movements during the day.
Disadvantages of having multiple Demat accounts
While maintaining multiple demat accounts may seem advantageous at first glance, it can introduce complexities for investors, particularly those new to the equity markets. Here's a closer look at some potential downsides to consider:
- Accumulated Account Maintenance Charges (AMCs): Each demat account typically incurs annual maintenance charges (AMCs) levied by the broker. Maintaining multiple accounts translates to multiplied AMC costs, which can become a significant expense for infrequent or low-volume traders. Additionally, managing and tracking these charges across different brokers can be cumbersome.
- Increased management burden: Effectively managing multiple demat accounts requires a high level of organisation and market knowledge. Investors need to meticulously track holdings across each account, ensure timely payments of charges, and consolidate investment positions for a holistic view. This can be a time-consuming and error-prone process for those unfamiliar with the intricacies of equity investing.
- Risk of account dormancy and inactivity fees: Inactivity in a demat account for an extended period can lead to account freezing by the broker. With multiple accounts, it becomes more challenging to maintain timely updates and monitor account activity. This can result in missed notifications regarding account freezes and potential accumulation of dormancy charges or penalties.
Limitations of multiple Demat accounts
- Extra expenses - Every broker will charge a fee for a Demat account in the form of annual maintenance charges (AMC) even if the account holder is not using that Demat account.
- Freezing of account - In case a person keeps a Demat account idle for a longer period, the broker can freeze that account unless the KYC formalities are completed again.
- Time consuming - An investor must monitor the transactions carried out in every Demat account regularly. However, it might be difficult for most investors to do so and they may end up consolidating all idle Demat accounts. An extra activity of consolidation becomes an additional hassle.
How to manage multiple Demat accounts?
Managing multiple Demat accounts requires careful planning and organisation. Investors can streamline their portfolio management by consolidating holdings whenever possible, especially if they have similar investment objectives across accounts. Regular account reconciliation is crucial to ensure accurate tracking of investments and prevent discrepancies. Utilising a portfolio management tool or spreadsheet can significantly aid in tracking transactions, monitoring performance, and identifying potential tax implications arising from multiple accounts. Furthermore, investors should consider the associated costs and benefits of maintaining multiple accounts, such as brokerage fees, account maintenance charges, and access to different trading platforms and investment options.
