Most of us understand the basic difference between a trading account and a Demat account. A trading account with a broker is where the actual trades in equity and F&O are executed. F&O trades and intraday trades are settled in the trading account itself. When you take delivery of equities, the shares are credited to your online Demat account. Similarly, when you sell shares, they get debited to your Demat account. The Demat account is to been seen in the same light as a bank account. Just as a bank account is a repository of your cash balances, the Demat account is a repository of your balance of shares and other securities. A Demat account is opened with your depository participants and normally it is the broker who also doubles up as a DP.
But there are some pertinent questions that pertain to your Demat account. How many Demat accounts can one person have in India? Is it possible to have one Demat account and multiple trading accounts linked to it? How does a Demat account operate? Are shares safe in a Demat account, since there is nothing physical? The question, "Can I have multiple Demat accounts" has a very simple answer, "Yes". Let us answers these questions and throw some more light on the nuances of your Demat account.
What you need to know about a Demat account
While your Demat account is opened with your DP, these shares actually remain in the custody of the Depositories. When you open your Demat account, you specify whether your account is with CDSL or with NSDL. These are the depositories who hold your shares in custody and not your broker who normally acts as the depository participant. These are backed by the stock exchanges and by government institutions.
It is perfectly legitimate to have multiple Demat accounts just as you can have multiple trading accounts. The only condition is that you cannot have multiple trading accounts or multiple Demat accounts with the same broker or the same DP. So if you have one DP account with SHCIL, you can surely open another DP account with Motilal Oswal.
Every Demat account involves some cost. There is the annual maintenance charge (AMC) that the DP will charge you, which could range from Rs.700 to Rs.1000 per year. Additionally, there are stock movement charges for every debit from the Demat account. So, even if your Demat account is idle, you still need to pay the AMC which can add up to quite a bit if you have multiple Demat accounts.
A single Demat account can be linked to multiple trading accounts just as a single bank account can also be mapped to multiple trading accounts. Normally, for the same of simplicity brokers insist on having the broking account and the Demat account with the same broker. This will ensure that the process of delivery in and delivery out happens smoothly. More so, in case of online trading accounts, the debit to your Demat account is seamless and hence the risk of short delivery and auction rarely arises.
Are there any merits of having multiple Demat accounts? Frankly, not much! There is one case in favour of multiple Demat accounts. When you are a trader and an investor, it is quite convenient to have your trading transactions with one trading account and investment transactions with another account. This helps you to segregate the trading portfolio and the investment portfolio when separate Demat accounts are maintained for the same.
One needs to be aware of the risks of having multiple Demat accounts. There are statutory risks. If Demat accounts are idle beyond a certain period, then the depository will freeze your account. Then you will not be able to transact on that Demat account unless the KYC formalities are undergone. Secondly, if you have multiple Demat accounts, ensure that all the Demat accounts are properly linked to you Income Tax PAN and your Aadhar Card. Linking to Aadhar card is now compulsory.
Lastly, if you have multiple trading accounts across different depositories, you must seriously look at consolidating these Demat accounts. Ideally, it is best to have 2 Demat accounts; one for your trading activity and one for your investment portfolio. The remaining Demat accounts can be consolidated with one of these 2. You can consolidate through off-market transactions using your Debit Instruction Slip (DIS). That way your shares can be consolidated under 1 or 2 Demat accounts and these off-market transactions to the same PAN mapped Demat account does not attract any stamp duty or capital gains tax liability.
So, coming back to our core question, Can I have multiple Demat accounts, the answer is yes you can. But it has implications in terms of costs and statutory compliances. Can you map one Demat account to multiple trading accounts; the answer is yes. But you need to look at the benefits of seamless transactions. The answer is to consolidate your Demat accounts to a maximum of 2 or 3 accounts. Beyond that, it adds little value!