Trading on the stock market can be intimidating for a large number of reasons. You may not be well-versed with how the market works, lacking in knowledge about the companies listed on stock exchanges, or, simply, boggled by the nuts and bolts of actually carrying out trades. Rules seem to be in constant flux and differ for depositories, exchanges and brokerages. Truly, the machinery that facilitates transactions on the stock market is a complex one and leaves even the most veteran of traders fumbling.
When it comes to opening Demat accounts, these rules can often be very elusive. Demat accounts hold all the assets – securities, stocks, bonds and others – that you have to your name. However, you can’t simply debit or credit this account when making sales or purchases. You should understand how to link a demat account with a trading account. This is imperative because your trading account acts as an interface and enables your trades. Both your Demat account and trading account are also linked with your bank account.
Multiple Demat accounts?
As per the Securities and Exchange Board of India (SEBI) or other regulatory authorities, there are no restrictions on the number of Demat accounts that can be held by an individual trader. However, there are a few things that one must bear in mind while considering multiple Demat accounts.
– You cannot open a second Demat account through the same brokerage. If you must open a fresh account, it should be with another broker. Each Demat account is linked to a PAN number. Within one brokerage house, therefore, it is not possible to open multiple Demat accounts. You can, however, open these accounts with other brokerages.
– Demat accounts that lie unused for long durations of time are deactivated by the depository participant (DP) or broker. Moreover, if you wish to operate these accounts again, you will be required to go through the hassle of completing your eKYC again.
– If it is not of much use to you, an additional Demat account will only be an added expense. You will be required to pay yearly maintenance and other charges, regardless of the account’s usage.
There can also be a number of benefits to opening multiple Demat accounts. They help you keep your investment and trading portfolios neatly segregated if your trading strategy is a mix of long-term investments and short-term trading based on the market conditions. Since these Demat accounts will be opened by different brokerage firms, you can receive varied advice, research and analysis from different brokers.
The million dollar question
When you approach a stockbroker to open a Demat account, it often comes bundled with a trading account. However, what happens if you want to open multiple Demat accounts? Do you also get an equal number of trading accounts to match them? Yes, and no. If you so wish, you can get a trading account for each Demat account you hold. However, this can be difficult to manage and keep track of for many investors.
In this case, you can link all your Demat accounts to a single trading account. However, this depends on the brokerage you are using. While some brokers allow you to link multiple Demat accounts held with other DPs to a single trading account, others do not. Some brokerages disallow this because it is simpler to hold both Demat and trading accounts with a single entity.
Others place a limit on the number of Demat accounts you can map with a single trading account. Sometimes, brokerages may also impose additional fees for extending this service. Moreover, brokerages may ask you to transfer securities held in an external Demat account to a Demat account with their firm in order to use their trading account.
What about multiple trading accounts?
Conversely, it is possible for you to map multiple trading accounts with a single Demat account as well. Again, the condition for opening more than one trading account is that it should not be done with the same brokerage house. Moreover, you can have just one Demat account linked to your many trading accounts.
Although tracking more than one trading account can be difficult and requires payment of opening and maintenance charges, it can help demarcate your trading portfolio from your investment one and allow access to a variety of research.
In FY 2021, an additional 14.2 million Demat accounts were opened in India, showing a sharp rise in the number of people shifting away from traditional types of investments such as property and gold. This number gauges the overall increase in appetite for investments in the country. However, do these bloated numbers also translate to more experience and finesse in trading?
Opening more than one Demat account has its benefits and drawbacks, and should be considered only when sorely needed. You should also find out about your stockbroker’s policy regarding mapping multiple Demat accounts held with other brokerage houses to a trading account held by them. A thorough consideration relating to the limit of the number of Demat accounts that can be linked to one trading account, any additional charges for this service and other rules is warranted before a trader considers opening an additional Demat account.