The pandemic-induced lockdown has led to an exponential rise in accounts being opened by brokers and trading platforms. As investors in retail have increased substantially due to fears about a secure financial future and the risk that they will miss out on opportunity costs while sitting at home, they are looking for better ways of investing their money and gaining a return.
Access to the securities market requires a Demat account. This is usually a Depository Participant (DP) in most cases. A large number of online discount brokers allow new investors to open a demat account, trade and pay minimal fees. You can also choose a full-service broker if you want to offer financial advice and help with your investments.
Individuals are allowed to open a Demat Account with multiple brokers, which allows them to have multiple demat accounts under the same name. However, only one Depository Participant is permitted to have a Demat account . A full-service broker, or a general discount broker, can offer all the information and access that you need to trade and invest, including stocks, mutual funds, ETFs and bonds. It is up to you what level of experience and the type of returns that you desire over a particular time period.
Investors might choose to open multiple Demat account. While there are many reasons to open multiple Demat accounts, it can also be a risky move. Let's now take a look at what the pros and cons are to opening multiple Demat accounts.
1. One advantage of a Demat account is its ability to apply the knowledge from one broker to your larger portfolio. You could, for example, apply the advice and suggestions of your full-service broker on how you manage your other investments. A general-discount broker will not be able to offer the same level. This could increase your knowledge and potentially benefit your portfolio.
2. You can also benefit from multiple Demat accounts, depending on your preference.
3. To segregate your long-term and short-term investments, you could open Demat accounts with different brokers. You could, for example, open a Demat with a broker with lower transaction fees for short-term investments. However, you might also choose to open a Demat with a broker with lower account maintenance costs for long-term investments. This is because you will likely keep your investments but not transact as much.
4. Multiple Demat accounts can help you build a wider portfolio and give you more credibility. For instance, if you want to invest in an IPO that isn't available to everyone, your portfolio with multiple Demat accounts will likely give you an investment opportunity. The same applies to dealing with government securities.
1. The biggest problem with multiple Demat accounts is the increased charges. You will most likely have to pay a small account maintenance fee even if your DP allows for an account to be opened at no cost. Transaction fees are also added to every trade you make. If you trade through multiple Demat accounts you will have to pay higher maintenance fees and transaction fees. This could impact your profits.
2. A downside to Demat accounts is that each account needs individual attention and time. Your time investment will increase if you have multiple Demat account. Multiple accounts can be a hassle if you work a full-time job or don't want to become an active investor. Due to the different monthly, quarterly, annual and annual statements, managing multiple Demat accounts requires good bookkeeping skills.
If you are an experienced investor making calculated decisions, having multiple Demat accounts may be a smart strategic move. Diverse DPs have different pros and cons, which can be used to maximize returns. If you have difficulty managing multiple Demat accounts and are unable to keep them all organized, opening multiple Demat accounts with different brokers may result in lower returns. One must maximize the benefits of one DP. Digital platforms offer fast opportunities, so it is important to consider how one can maximise their gains. To determine if multiple Demat accounts are the best move for you, consider the pros and cons and then apply them to your investment plans.