Brokers and trading platforms have seen an exponential increase in the accounts that are opened with them, as a result of the pandemic-induced lockdown. Retail investors have grown substantially, as fears of a secure financial future, and the risk of foregoing opportunity costs whilst sitting at home has them looking for better ways to invest their money and gain a return on capital.
The basic requirement to access the securities market is a Demat account with a depository participant (DP), in most cases your stockbroker. There are a large number of discount brokers available online that let new investors open a Demat account and trade while paying minimum charges. If you wish however, there is also the option of choosing a full-service broker that along with letting you open a Demat account and trade on the stock market, will also offer you financial services for your investments and advice pertaining to these investments, with an additional cost.
While individuals are allowed to open a Demat account with more than one broker, allowing them to have multiple Demat accounts under their name, they are permitted only a single Demat account per Depository Participant. As mentioned above, a general discount broker or a full-service broker can provide you with all the advice and access you need to trade and invest in securities such as stocks, mutual funds, ETFs, and bonds. You can opt for either depending on your experience level and the kinds of returns you are looking for across a specific time period.
However, investors might opt to open multiple Demat accounts. There are a number of reasons for one to do this, however, they come with some drawbacks and increased risk as well, if you are not well versed with operating multiple Demat accounts. In this article, let’s take a look at the pros and cons of opening multiple Demat accounts.
Pros of opening multiple Demat accounts.
1. While assessing the pros and cons of a Demat account, one advantage that stands out is the ability to implement the knowledge gained from one broker to your wider portfolio. For instance, you would apply the suggestions and advice from your full-service broker to the way you manage your other investments, through a general-discount broker who will not offer the same level of advice. This can result in an increase in your knowledge about investing in the stock market, and possibly benefiting your portfolio as well.
2. Another benefit of opening multiple Demat accounts is that you can benefit from the various interfaces offered by different brokers, based on your preference.
3. You could also opt to open a Demat account with different brokers in order to segregate your short term and long term investments. For instance, you could open a Demat account with a broker that offers low transaction fees for your short term investments, due to the net trades you make being higher, whilst also opening a Demat account with a broker that offers lower account maintenance charges for your long term investments, as you are likely to hold on to your investments, but not transact them as much.
4. Opening multiple Demat accounts also helps you widen your portfolio, offering you more credibility. If for instance, you are looking to invest in an IPO, the allotment of which is not available to the general user, then your more diverse portfolio fueled by multiple Demat accounts is likely to get you an investment opportunity. A similar advantage is faced when dealing with some government securities as well.
Cons of opening multiple Demat accounts.
1. One of the biggest downsides of opening multiple Demat accounts, is the increase in charges relating to the account that you face. Even if your DP allows you to open an account free of charge, it is most likely that there will be a nominal account maintenance fee attached to that Demat account. In addition to this, transaction fees are also charged every time you make a trade. Therefore, if you are operating and trading through multiple Demat accounts, then you will be paying higher maintenance and transaction fees, which could eat into the profits you are making through your trades.
2. Another downside, when considering the pros and cons of Demat account, is the fact that each Demat account requires individual time and attention. If you have multiple Demat accounts, your time investment increases. If you have a day job or are not looking to be an active investor, then operating multiple accounts might be an inconvenience. Operating multiple Demat accounts also demands good bookkeeping skills from the investor due to the various monthly, quarterly, and annual statements.
Having multiple Demat accounts can be a good strategic move if you are an experienced investor who is making calculated decisions. Different DPs offer various pros and cons of Demat account, which can be tactfully utilised to maximise returns. However, if you are not able to successfully keep track of and operate multiple Demat accounts, then opening a Demat account with multiple brokers could net you lower returns due to increased charges. Generally, one must look to optimise the benefits one gain from one DP, given that digital platforms allow for fast opportunities before they look to open multiple Demat accounts. You can now consider the pros and cons of a Demat account and apply it to your investment plans to gauge if having multiple Demat accounts is the right move for you.