Pros and Cons of Opening Multiple Demat Accounts
While one Demat account is sufficient for most investors, opening multiple Demat accounts is permitted by SEBI. The only catch is that you cannot open multiple Demat accounts with the same Depository Participant (DP). While there are many benefits of opening multiple Demat accounts, there are some risks and disadvantages too. In this article, we will explore the pros and cons of opening multiple Demat accounts.
When you decide to invest in securities, you need to open a Demat account where the securities are held in a dematerialized form. This account can be opened with a depository participant (DP). There are two depositories in India called the NSDL and CDSL. Each of these depositories has many depository participants that offer Demat accounts to investors. There are many stockbrokers who are DPs too and offer Demat accounts bundled with online trading accounts.
According to SEBI’s guidelines, investors are allowed to open multiple Demat accounts with more than one DP. However, they can’t have more than one Demat account with the same DP. If you are not sure why any investor would need multiple Demat accounts, then here are some advantages of having them.
Pros of opening multiple Demat accounts
- If you are opening a Demat account with a stockbroker who is also a DP, then having an account with multiple brokers can help widen your knowledge base. For example, you can open one account with a full-service broker and another with a discount broker. This might help widen your knowledge of the markets and potentially benefit your investment portfolio.
- One of the biggest benefits of opening multiple Demat accounts is that you can segregate your portfolio between long-term and short-term investments. For example, if you want to start day trading, then you might look for a broker that offers low brokerage for intraday trades and also choose to open a Demat account with him. On the other hand, for your long-term investments, you might want to choose a broker that offers features and benefits for delivery-based transactions and open another Demat account with him. This approach can help you keep your holding separate and track and manage them better.
- There are many IPOs that are not available to the general public. If you want to apply for shares in such IPOs, having multiple Demat accounts can highlight a diverse investment portfolio and increase your chances of getting an investment opportunity. This can also be true for some government securities.
Now that you are aware of the advantages of multiple Demat accounts, let’s take a quick look at some disadvantages too.
Cons of opening multiple Demat Accounts
- Demat Accounts have various charges like account opening charges, annual maintenance charges, custody fees, etc. Having multiple Demat accounts means an increase in the total charges that you will have to bear. While some DPs might waive off the account opening charges, most DPs charge a nominal annual maintenance charge. With multiple Demat accounts, this can add up to a sizeable sum.
- Another con of having multiple Demat accounts is that you will have to dedicate time and attention to manage them. If you are not an active investor who invests full-time, this can become cumbersome.
Hence, having multiple Demat accounts can be a good strategy if you are an active investor who has a portfolio of long-term stocks and participates in intraday trading too. It is important to remember that having multiple accounts will require additional time and effort for management. Make sure that you consider the pros and cons carefully before opening multiple Demat accounts.
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One of the biggest advantages of opening multiple Demat accounts is that you can segregate between long-term and short-term investments. While this might not sound like much unless you have tried managing a Demat account that has both long-term holdings and day trading shares, having separate accounts can help manage them more efficiently.
Investors who invest in securities for the long-term and participate in intraday trading too can usually benefit from multiple Demat accounts. If you need to segregate your investments for any other reason, then you can open more than one Demat account. However, it is important to remember that have multiple accounts will increase costs and require more time for management.
The biggest disadvantage of opening multiple Demat Accounts is that you will have to bear increased costs. Each Demat account has certain fees and charges associated with it. Multiple accounts mean these charges can add up to a sizeable sum. Also, having multiple Demat accounts would require you to spend more time to ensure that the accounts are in order.