A Demat account is the first step to carrying out a purchase in the stock exchange. Once a Demat account is opened with a registered depository participant (broker), you can buy shares and other financial instruments online.
An investor can open multiple Demat Accounts with different brokers with a valid PAN card. The Securities and Exchange Board of India (SEBI) does not levy any limitation on opening more than one Demat account in India.
It is necessary that all Demat accounts are properly linked to PAN so that comprehensive data of all investments can get stored in the central database of SEBI.This is to ensure all financial holdings of an investor are tracked by SEBIthrough PAN only.
Multiple Demat accounts and legality
It is legal to open multiple Demat accounts. However, it is not allowed to open multiple Demat accounts with the same brokerage firm.One can open multiple Demat accounts with full-time brokers and discount brokers simultaneously.
Things to know about opening multiple Demat accounts
- A trader can have multiple Demat and trading accounts. There is only one condition in this situation, you cannot open multiple Demat and trading account with the same stockbroker or same depository participant. You can only have one Demat and trading account with one stockbroker.
- Multiple Demat and trading account helps in maintaining the investment and trading portfolio differently.
- A trader should be aware of the charges which come with a Demat and trading account with different stockbrokers. The charges can be like AMC (Annual Maintenance Charge) which is charged by the broker to maintain the account from the backend.
- If a trader or an investor opens multiple Demat and trading accounts, he/she needs to be active on the same as brokers freeze the accounts if they will not be active for a longer time.
Requirement for multiple Demat accounts
For a person who is both a long-term investor and a trader, multiple Demat accounts will surely make it easy for him to keep a track of his transactions with the stock exchange. It is quite convenient for everyone to keep trading securities in one Demat account and other investment instruments in another Demat account.
Some traders may want to store their investments separately based on their goals, terms, stock type, stock exchange, etc. Multiple Demat accounts will surely help them to manage their securities without any confusion.
Advantages of multiple Demat accounts
- Multiple research reports - By opening different Demat accounts with different brokers, you can simultaneously avail of the services of different brokers. You can access a variety of research reports that will be helpful to trade more efficiently. You can also get exposure to multiple trading platforms.
- Easy tracking - Multiple Demats facilitate segregating trading portfolios and investment portfolios thereby making it easy to keep a track of transactions.
- One Trading account - It is not necessary to open multiple trading accounts to have multiple Demat accounts. You can link one trading account with multiple Demat accounts.
- Easy tracking - The goal of intraday trading is not to own the stocks, it’s rather to make profits by reaping the benefit of price movements during the day.
Limitations of multiple Demat accounts
- Extra expenses - Every broker will charge a fee for a Demat account in the form of annual maintenance charges (AMC) even if the account holder is not using that Demat account.
- Freezing of account - In case a person keeps a Demat account idle for a longer period, the broker can freeze that account unless the KYC formalities are completed again.
- Time consuming - An investor must monitor the transactions carried out in every Demat account regularly. However, it might be difficult for most investors to do so and they may end up consolidating all idle Demat accounts. An extra activity of consolidation becomes an additional hassle.
Managing multiple Demat accounts
Most new investors grapple with the question - can I open two Demat accounts and what are their legalities? While the answer is a simple yes, multiple accounts demand proper care to avoid any kind of fraudulent situation. Multiple Demat accounts are the most beneficial for seasoned traders who have enough time to monitor multiple Demat account activities regularly.
Ideally, two Demat accounts - one for trading and another for investing - are advised. If an investor is unable to manage multiple accounts, he can go for consolidation of these.
Investors need to analyse their Demat account requirements before opening multiple Demat accounts.
Certainly! The information you provided about Demat accounts and trading is quite comprehensive. Here's an overview and explanation of the concepts covered:
Demat Account Basics:
- Demat Account: It's an account used to hold shares and securities in electronic form, eliminating the need for physical share certificates.
- Depository Participant (DP): An agent registered with the Securities and Exchange Board of India (SEBI) who facilitates holding securities in electronic form.
- SEBI: The Securities and Exchange Board of India is the regulatory body overseeing the securities market in India.
Opening Multiple Demat Accounts:
- Legality: SEBI doesn't restrict the number of Demat accounts a person can open, but there are limitations:
- One can't open multiple Demat accounts with the same brokerage firm.
- Multiple accounts with different brokers or depository participants are allowed.
Requirements and Advantages:
- Linking to PAN: It's essential to link all Demat accounts to a PAN card for SEBI to track an investor's financial holdings.
- Advantages:
- Diversified Services: Access to various research reports and trading platforms by having accounts with different brokers.
- Portfolio Management: Segregation of trading and investment portfolios for better management.
- One Trading Account: Multiple Demat accounts can be linked to one trading account.
Limitations and Considerations:
- Extra Expenses: Each Demat account incurs charges like Annual Maintenance Charges (AMC), even if not actively used.
- Account Freezing: Inactivity might lead to accounts being frozen until KYC formalities are completed.
- Time Consumption: Monitoring transactions in multiple accounts can be time-consuming and may lead to consolidation for convenience.
Managing Multiple Demat Accounts:
- Ideal Strategy: For active traders, having separate accounts for trading and investing is recommended.
- Considerations: Investors should assess their needs and abilities to manage multiple accounts before opening them.
The information covers the legalities, advantages, limitations, and management aspects of multiple Demat accounts, emphasizing the need for proper consideration and vigilance while handling them.
