The outbreak has hastened the transition to a more digital world and prompted changes in online behavior that are likely to have long-term consequences. Groceries are purchased online, new movies release on OTT platforms, and most things have gone online. Trading financial assets have also been affected by the storm.
According to data from two Indian depositories, NSDL and CDSL, the number of active investor accounts increased by 10.4 million in 2020.
What do you need to trade on the stock market? The essential requirement is to have a Demat Account and identify the best app for trading. In most cases, the brokers even help you open a Demat account.
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What is a Demat Account?
“Demat accounts,” which act like a bank holding your money, hold financial assets. They are tracked similarly to the way a bank tracks money. The account maintains a non-paper version of most of your assets which you can manage.
For Instance: When an investor wants to purchase and sell stocks on a delivery basis, a depository account is required (Demat account). Investing in futures and options does not require a Demat account.
As we go through this article, we will examine the advantages and disadvantages of maintaining several Demat accounts.
4 Pros Of Having Multiple Demat Accounts
- Portfolio Segregation
When you have several Demat accounts, managing and organizing a diverse range of financial assets becomes much more straightforward than when you have one.
Consequently, long-term investments such as mutual funds or short-term investment options such as stocks and various other asset classes can be categorized, managed, and monitored more efficiently in separate accounts.
Consider the instance of a trader who desires to invest in seldom traded equities via a low-cost broker while keeping long-term investments with a full-service broker.
- Best Demat Account In India From Varied Brokers
Many investors opt to maintain Demat accounts with distinct kinds of brokers to take advantage of the distinct interfaces and additional services offered by brokers.
Having multiple Demat accounts also provides you with additional purchasing and selling choices.
- Security
Digitalization means storing assets electronically, which is substantially safer and removes the problematic aspects of trading in physical commodities and the possibility of them being lost or stolen.
- Increase Your Reputation
By setting up numerous Demat accounts, you will improve your market position. A broad portfolio supported by multiple Demat accounts may be vital to your chances of success in participating in an initial public offering (IPO) in the future. In the case of government-issued securities, the same is true.
4 Cons Of Having Multiple Demat Accounts
- Trading Expenses
There are costs associated with opening a Demat account with most depository participants. Each Demat account is subject to an annual maintenance fee (AMC), which implies that investors must pay their Depository Participant (DP) annually.
Along with the AMC fee, which varies per distributor, there will be other charges since AMC is not the only fee levied by DP.
For Instance, DP’s may impose extra transaction costs. Maintaining more accounts will require more money.
- Time
Switching between many accounts at once may be time-intensive and emotionally draining. To make an informed investment decision, one must be vigilant and keep track of the many changes, which may be time demanding and requires a significant time commitment. Multi-account administration may be complicated for traders who do not have much spare time.
Consider the time it would take you to create many accounts in a single day to check on the condition of your assets.
- Complicated
We choose to maintain Demat accounts with many types of brokers for various reasons, including that they utilize various strategies, have a range of different interfaces, and much more. While this is a benefit, keeping track of all of this may be complex.
For instance, you would need to record the specifications of two brokers individually and go through them each time you handled the various Demat accounts, which would leave you completely befuddled.
- Unused Accounts
Do you make use of every email account you’ve ever created? No, keeping many trading accounts may be a bit cumbersome as well.
If your Demat account is dormant for an extended period, your broker may opt to freeze it. It is possible to retrieve your stocks. However, the process can be time-consuming.
Also read: Best Finance Friendly Tips For Youngsters.
Bottom Line
We now understand the advantages and disadvantages of having several Demat accounts. However, maintaining several Demat Accounts is a personal option since each trader has their personality in the trading market. As with other investment options, this one must be exclusive.
In the long run, this is a one-time decision when you consider the benefits of having an organized and well-maintained account statement.