You need a demat account to invest in the Indian stock market. It keeps the securities and shares in an electronic form, and you can buy, sell, and monitor your investments easily. Although most investors start with one demat account, many experienced traders and investors end up opening more than one demat account, and for a good reason. That said, is it for everyone?
Let’s see the advantages of having multiple demat accounts, when to do so, and what you should be aware of.
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Diversify Brokerage Services
One of the greatest benefits of maintaining multiple demat accounts is gaining the advantage of using various brokers. Some charge minimal demat account fees and reduced trading rates, whereas others offer extensive research resources, improved user interfaces, or personalised advisory assistance. By maintaining accounts in discount as well as full-service broker houses, you get to have the advantages of both worlds, cost savings and intelligent investing.
Segregation of Investment Strategies
Having more than one demat account allows you to keep your investment activities separate; for example, one account for long-term investments and another account for intraday or short-term trading. This segregation provides transparency to your portfolio and makes it easy to monitor performance.
Simplifies Financial Goal Management
When you invest with a particular goal in mind, such as retirement, purchasing a home, or paying for your child’s education, keeping investments in separate demat accounts simplifies the tracking of goals. You can assign a separate account to each purpose and track progress with a clearer view.
Improved Organisation of Your Portfolio
Other investors may prefer to have separate demat accounts for distinct kinds of securities; for instance, equity shares in one account, mutual funds and ETFs in another, and bonds or fixed-income products in a third. This categorisation facilitates portfolio visibility and makes asset allocation and rebalancing easier.
Less Risk of Operational Disruption
Keeping all your holdings in one demat account carries risk. If your broker faces technical problems, service disruptions, or worse, financial troubles, your ability to access your investments can be impacted. Maintaining a backup demat account with a second broker alleviates dependency and provides a sense of calm amidst unexpected downtime.
Simpler Management of Family Investments
Several demat accounts can also be a convenient solution for family portfolio management. If you’re investing for several family members, maintaining different accounts for different people makes record-keeping as well as tax submissions simpler. You can even utilise specific accounts to organise future share transfers to loved ones.
Greater Flexibility in Trading Strategy
Various trading strategies call for various tools and platforms. Having multiple demat accounts provides you with the ability to use one account for intraday trading and another account for options trading. You can use yet another for holding allotments of IPOs or dividend stocks. This allows you to customise your trading environment to suit your particular strategy.
Potential for Better IPO Allotments
Having more than one demat account increases your IPO allotment chances by applying through several accounts, as long as each of these applications adheres to regulatory requirements.
Learning and Platform Comparison
Opening demat accounts with various brokers allows you to test and compare their offerings. From the simplicity of transactions to the quality of research facilities and customer support, trying out different platforms can increase your learning curve and allow you to determine which is most suited to your investment style.
Remember: Costs and Compliance Matter
Even with numerous benefits, having multiple demat accounts is not without its disadvantages. The biggest expense incurred is the annual maintenance charge (AMC). Every demat account you have incurs a different AMC, which accumulates over time.
Though you can have multiple demat accounts based on a single PAN card, you can have only one demat account with one broker. All the capital gains of all your accounts are cumulated and should be reported correctly while filing taxes.
Income Tax Department automatically monitors investments against your PAN, so you should ensure that all the accounts are transparent and compliant.
Wrapping Up!
Holding multiple demat accounts can offer tangible benefits, although they are best suited for seasoned investors who can manage them effectively. If you’re just starting or have a modest portfolio, limiting yourself to one or two accounts may be more practical, keeping demat account fees in check. The secret is to understand the reason for opening another demat account and having a definite strategy of how you will utilise it. With proper handling, having multiple demat accounts can become a powerful weapon to grow, manage, and secure your investments with ease.