Last Updated on December 26, 2023 by BFSLTeam BFSLTeam
In recent times, more people have turned to the equity markets for their investment needs. After the pandemic hit the world, and now, with inflation lurking everywhere, investors look for lucrative channels of investment. Traditional instruments are less chosen as their returns may not be as high as other investments, like say, stocks, may offer.
The first step toward entering stock investment is to open a Demat account. With the rise in Demat accounts, you can see that stocks are becoming popular investment instruments. Before you open a Demat account, it is worth knowing the basics of this account and the advantages of a Demat account. Furthermore, some disadvantages should also be explored so that you can make informed decisions. This is especially important if you wish to open more than one Demat account.
Table of Content
Demat Accounts – Some Basics
Having a Demat account is your gateway to investment in the stock markets. A Demat account is an electronic storage facility that holds your securities safely in electronic format. You may want to link your Demat account to a trading account to buy and sell shares in the stock market.
Although one Demat account can hold a number of securities and different kinds of securities, you may want to have multiple Demat accounts to streamline your account holdings. There are certain advantages of a Demat account when you have more than one, and we will get to that later. For now, you should note that although you can open multiple Demat accounts, with more than one broker, you are only permitted to have one Demat account per depository participant (DP). Essentially, your DP is your broker or bank that has the authority to open a Demat account on your behalf. So if you wished to open multiple Demat accounts, you would have to do so with different DPs. Nonetheless, if you choose to do so, it is worth knowing the Demat account advantages and disadvantages of opening multiple accounts.
Additional Read: Features and Benefits of Opening a Demat Account
Advantages – Demat Account
There are some key advantages to holding multiple Demat accounts. These are detailed below:
- Knowledge and Information
An advantage that stands out when you open multiple Demat accounts is that related to the information you gain from different brokers or DPs that you open accounts with. You can implement information from one source and put it to use with another broker where you have another Demat account. This results in a rise in your information and knowledge regarding investment in the stock market, and your portfolio benefits too.
- Several Interfaces
Another one of the advantages of a Demat account with multiple DPs is that you benefit from a variety of interfaces available to you through different brokers with varying online platforms.
- Organisation of Investment
In case you wish to have your investments segregated into different categories, like say, long-term and short-term investments, you could open multiple Demat accounts. Certain Demat accounts like those with low fees for transactions may be considered for short-term investments as the net trades you conduct may be on the high side. On the other hand, you may want to consider another broker offering low maintenance charges for long-term investments as you may likely hold your investments for a long period, without transacting so much.
- Diversification of Your Portfolio
While discussing multiple Demat account advantages and disadvantages, one of the advantages of multiple accounts results in portfolio diversification. You automatically broaden your portfolio and this gives you credibility as an investor.
Additional Read: How To Open Demat Account?
Multiple Demat Accounts – Disadvantages
Although the advantages of having multiple Demat accounts are keys to managing your portfolio in an efficient manner, you should be aware that there are certain disadvantages too:
- Increased Charges/Fees
One of the main downsides of opening many Demat accounts is the rise in fees/charges you may encounter. You may be able to open an account for free but particular maintenance charges may kick in later. Furthermore, charges are levied every time you make trades. These may increase with multiple trades across multiple accounts. This may potentially eat into any profits you may earn.
- Time and Effort
Among Demat account advantages and disadvantages, a downside could be that you may have to expend significant time and effort with many accounts. Every account will likely require individual monitoring and management. You will probably end up investing more time and effort in many accounts compared to just one or a few.
Additional Read: Documents Required for Demat Account
Concluding Lines
The advantages of a Demat account with multiple DPs may tempt you into having many accounts, but you should be aware of certain disadvantages of this practice too. Having many accounts can be considered a somewhat strategic tactic seeing that different DPs bring different advantages to the table. Nonetheless, consider that keeping a watchful eye on many accounts may be a cumbersome task and you will have to spend a significant amount of time and possibly capital on this. The key to having a Demat account is to maximise your gains while minimising risk.
Additional Read: Demat Account Charges
FAQs
You can have more than a single Demat account but you must consider the advantages and disadvantages of a Demat account with many DPs.
Different DPs may offer different advantages in terms of a Demat account, like say, one may offer fewer charges for transactions than another.
One of the main advantages of having multiple Demat accounts is that you gain exposure to the varying benefits of different DPs and can choose a variety of ways to invest and manage accounts.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
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