5 Pros and Cons of Holding Multiple Demat Accounts

Demat accounts and trading accounts are amongst the most prominent components of the operational framework of the securities market in India. 

In order to start investing in the market, you must open a demat account and a trading account. Both accounts can be opened and accessed online. In this article, we shall discuss 

• What is a demat account 
• Pros of having multiple demat accounts 
• Cons of having multiple demat accounts 

What Is A Demat Account 

Let us start by discussing what is demat account. When you purchase securities from the market through your trading account, the securities get transferred to your demat account (once the transaction has been settled). In its simplest form, a demat account is a safe reservoir for your market-linked assets. 

The usage of demat accounts has made the entire process of investing in the market more transparent, accessible, cost-effective, and time-efficient. 

You can open a demat account online with any registered depository participant. It is also possible to open multiple demat accounts, but only one demat account can be opened with one broker. 

Pros Of Having Multiple Demat Accounts

Now that we have discussed what is a demat account, let us explore the pros and cons of opening and holding multiple demat accounts. 

Ease Of Bifurcating Investments By Tenure

One of the benefits of holding multiple demat accounts is the freedom to bifurcate your investments in the market by tenure. While one account can be used for short-term investments, another can be used for long-term investments. 

Access To Multiple Brokers’ Trading Platforms

Each trading platform offers important features for investors. If you hold multiple demat accounts and trading accounts, you may enjoy access to the trading platforms offered by different brokers. This could enhance your overall access to useful market reports and other relevant trading platform features. 

Flexibility To Segregate Investments In Different Asset Classes

Another advantage of holding multiple demat accounts is the flexibility to use separate accounts to invest in different asset classes. While one account can be used to invest in shares and other equity related instruments, another can be used to invest in debt based securities. 

Adequate Management Of Portfolio Risk

Holding more than one demat accounts can also help you manage your overall risk exposure. While one account can be used to invest in high risk assets, another can be dedicated to low risk and relatively stable assets. 

Separate Demat Account To Apply For Ipos

In this day and age, Initial Public Offerings are considered a prominent investment option. You can demarcate a separate demat account to apply for IPOs. This can help you keep track of your IPO applications. 

Cons Of Having Multiple Demat Accounts

While there are several benefits of holding multiple demat accounts, there is no dearth of cons associated with the decision. Let us discuss some key cons of holding multiple demat accounts. 

1. High Total Demat Account Charges

The more the number of demat accounts in your name, the higher your overall outlay towards demat account charges. Therefore, it is prudent to open more than one demat account only if you require an additional account. 

2. Time Required To Monitor Each Account

It is important to check your demat account on a periodic basis, and assess whether you must add/ remove securities from your investment portfolio. If you have multiple demat accounts, it is likely to require a long time to monitor each. 

3. Chances Of Accounts Becoming Dormant

Failure to access and use your demat account for more than 12 months can lead to the account being marked dormant. The reactivation of the account may entail a fee. 

4. Clutter And Confusion

By holding multiple open demat accounts, you may find it difficult to have a centralised view on your entire portfolio. This could lead to chaos and confusion, and potentially make you miss out on timely investment decisions. 

5. Difficulty In Assessing Tax Liability

If you keep different assets in different demat accounts, the task of assessing the tax liability on each may be cumbersome. There is a chance of miscalculation of the obligation. 

The Bottomline 

We hope this guide on the pros and cons of holding multiple demat accounts is helpful to you. While having multiple demat accounts has some arguments in its favour, there are also substantial cons. You must open demat accounts in line with your investment requirements and your budget.