With the returns from some investment products tapering in the last few years, equity has become a popular option with investors. The addition of new demat accounts has been increasing gradually over the years. From 25 lakh in 2018-19, the number of new demat accounts opened by Central Depository Services Ltd jumped to 38 lakh in 2019-20. Over 11.5 lakh demat accounts were opened by the depository in just two months of the current financial year.
A trading account, demat account and bank accounts are mandatory to invest in the equity markets. It is well-known that you can have many bank accounts, but can you have more than one demat account? To get the answer, let us discuss how to open a demat account
The demat account is opened by a depository participant or DP, who is popularly known as the stockbroker, but it is managed by the depository. There are two main depositories in India—CDSL and NSDL. The demat account is connected to a trading account for ease in buying and selling of shares.
One can have numerous demat accounts in India. The markets regulator Securities and Exchange Board of India or any other authorities have not put any limitations on multiple demat account opening. However, before the demat account opening, let us take a look at a few important points.
Not with the same broker:
While you can have more than one demat account, there are certain conditions that have to be followed. The primary condition is that one cannot have more than one demat account with the same DP. It essentially means that your second demat account cannot be opened through the same stockbroker.
The process of demat account opening is very simple. The entire process can be completed online, but you have to pay certain fees like account opening charges and yearly maintenance charges (AMC). Various charges will continue to be levied by the DP even if you do not utilise the demat account for a long time. The AMC can vary from Rs 500-Rs 1000 depending on the DP. If you do not utilise multiple demat accounts, stick to one to reduce expenses.
If the demat account remains unused for a long period of time, it may be frozen by the DP. To reactivate the demat account, the eKYC will have to be completed again.
Just opening multiple demat accounts does not suffice. It is important to keep a track of the transactions carried out through numerous demat accounts. It will give you an idea of your financial position.
The rationale behind having more than one demat account
There are no legal conditions that bar opening of more than one demat account. However, there should be a rationale behind having more than one demat account.
Categorisation of portfolio:
Many people trade and invest as per the market conditions. A part of the portfolio is invested for the long term while the balance is used for trading. Having multiple demat accounts can help you segregate your portfolio efficiently. You can maintain separate trading and investment portfolios in different demat accounts.
Access to different services
Demat account opening is generally followed by the opening of a trading account. Stockbrokers offer bundled demat and trading accounts. Though it is not necessary to have multiple trading accounts with more than one demat account. When you have multiple demat accounts, you also get access to research and analysis from different stockbrokers. The information can be used to increase the efficiency of investing and trading activities.
It is relatively safer to keep the shares purchased by you with the stockbrokers if you have more than one demat account. The financial securities are managed and held by the depositories and stockbrokers have no authority over it. Without your permission, it is not possible to move the shares from the demat account.
Having multiple demat and trading accounts may have some utility, however, you should stick to a lower number of accounts. Keeping track of multiple demat accounts becomes difficult if you are a prolific trader or investor. When you think about how to open a demat account, also ask yourself the purpose of demat account opening. Opt for an IIFL Demat and Trading account and get access to quality research that will reduce the need to have multiple accounts. If you opt for an IIFL Demat and Trading account, you will not have to pay the annual maintenance for a year.