Opening a Demat and trading account to invest in the stock market is mandatory. However, a question that potential traders and investors often ask is, “Can I have more than one Demat and Trading account?” This article clarifies your doubt by discussing the possibility, pros, and cons of opening multiple Demat and Trading accounts in India.
The one-word answer to “Can I have more than one Demat account” is a resounding ‘Yes.’ The Indian securities market is governed by the Securities and Exchange Board of India (SEBI). And SEBI does not bar anyone from opening more than one Demat account. A Demat account is mandatory to participate in and profit from the highly volatile stock market. Investors also need a Demat account to invest in bonds, Exchange-Traded Funds (ETFs), and some mutual funds.
Demat accounts are managed and controlled by two institutions in India - CDSL and NSDL. CDSL stands for Central Depository Services Limited, while NSDL stands for National Securities Depository Limited. A customer needs to approach a stockbroker or bank to open a Demat account. Discount stockbrokers generally offer the best deals on new account openings.
Stock brokers are of two types - discount and full-service. Discount brokers usually charge less brokerage than full-service brokers. However, unlike full-service brokers, they do not offer investment advice and market analysis. Therefore, customers may have to pay extra if they wish to receive investment advice. Conversely, a full-service broker offers market analysis and investment advice. But, customers may have to spend higher amounts on maintaining accounts.
Like the previous question, the answer to this question is also ’Yes.’
A trading account acts as the interface between an investor/trader and the capital market. The trading account simplifies investments in stocks, bonds, ETFs, and mutual funds. Before buying stocks, bonds, or ETFs, investors need to link their trading account with their bank account. Then, they can use the trading account to fetch money from their savings/current account and invest in the market.
Similarly, they must place a withdrawal request in the trading account when they want to withdraw money. Share trading is of two types - intraday and positional. Intraday trading is when a trader buys and sells stocks on the same day, meaning they don’t hold the stocks overnight. In contrast, positional is when an investor holds the shares for more than one day. When a positional trader buys stocks, the stocks are credited to their Demat account.
Similarly, when they sell stocks, their Demat account gets debited. So, if an investor/trader buys and sells stocks on the same day, their Demat account does not get credited, and so, only the trading account is put to use. However, the Demat account swings into action if they hold some stocks.
Now you have the answer to the question, “Can I have more than one Demat/Trading Account?” Let’s now discuss the pros and cons of opening more than one Demat and trading account.
The top benefit of maintaining multiple Demat and trading accounts is that investors may get stock recommendations or analysis reports for free. As mentioned, full-service brokers usually provide good quality investment advice for free.
Investors can use such information to boost their knowledge and trade with discount brokers to save the brokerage fee.
Although all stockbrokers offer the same services, not all are equal. Different brokers provide different interfaces to invest. Opening multiple Demat and trading accounts enables you to select the best interface/platform for trading and investing.
It is pretty challenging to segregate long and short-term investments in one Demat and trading account. Having more than one Demat and trading account is imperative when investors want to keep their short-term investments away from long-term investments.
Generally, short-term investments must be kept in an account charging minimal transaction fees. Also, long-term investments must be kept in an account charging a minimal account maintenance fee.
Every Demat and trading account comes at a cost. While brokers do waive off the charges for some accounts, you would still pay something or the other to maintain such accounts. So, more than one Demat and a trading account can reduce your effective profits.
Maintaining multiple Demat and trading accounts also means more time investment. If an investor does not have the time to monitor many accounts, it might be difficult for them to extract the maximum benefits from such accounts. Moreover, investors need to collect data from all accounts for taxation purposes.
If an investor does not use their account for a certain period, the stock broker may freeze their account. While any stocks lying in such an account remains safe, the investor has to activate/unfreeze their account before liquidating such shares.
The answer to the question “Can I open more than one Demat and trading account?” is ‘Yes.’ The sections mentioned above specify why investors should open more than one account and the flipside of doing so.
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You can open multiple Demat accounts with different depository participants since the Securities and Exchange Board of India (SEBI) does not bar investors from opening multiple Demat accounts. You can approach any discount or full-service stockbroker to open a Demat account(s).
Discount stockbrokers offer no-frill accounts, providing lower brokerage fees and better savings. In contrast, full-service brokers offer many premium services, such as free stock recommendations, branch support, etc., against higher fees.
Like the Demat account, you can open multiple trading accounts with different stockbrokers. Investors usually open multiple Demat/ Trading accounts to categorize or segregate their investments.
Ensure to link your trading account with a bank account since, without linking, you cannot transfer money to and from your trading account and bank account.
You can increase your knowledge of the capital markets by opening multiple Demat and Trading accounts. You can also choose from multiple interfaces and pick the best interface to place trades.
Also, multiple accounts enable you to segregate your short and long-term investments. But, you may have to pay more for maintaining multiple Demat and Trading accounts. Before opening, evaluating the pros and cons of multiple Demat/Trading accounts is wise.
Although opening multiple Demat and Trading accounts provides several benefits, you may have to pay more to maintain multiple accounts. Moreover, maintaining multiple accounts means you must invest more time in managing such accounts.
Additionally, the stockbroker might freeze your account if you do not use your account(s) for a certain period. So, to avoid these hassles, it is wise to choose a broker who understands your investment goals and provides the best solutions.
You can open as many Demat and Trading accounts as you want. However, before opening more than one Demat/Trading account, consider the pros and cons. Choosing the best broker to get extraordinary benefits and the best brokerage fees is wise.
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