It is a well-known fact that a demat account is mandatory for people to invest or trade in the stock market. A demat account offers numerous advantages; for example, it allows investors to hold their securities in an electronic format, relieving them from the headache of dealing with paper certificates. Besides, a demat account is also a secure way of making stock market transactions.

That said, does it make sense to open demat account? Or, is it better to open multiple demat accounts for a person? Before we answer this question, we should know that as per the regulations in India, a person should have at least one demat account to invest in the stock market.

The regulations do not make it compulsory for people to open multiple demat accounts. As per the regulations, a person can have as many demat accounts in India as he wants. However, there are certain conditions, which make it necessary for a person to have multiple demat accounts.

It is necessary to have multiple demat accounts if you are a trader in the stock market. A trader often takes multiple positions in a day. At times, he takes intraday positions, which need to be squared off within the same trading day.

Suppose a trader takes an intraday position and buys a stock. In this case, he needs to sell that stock within the same day. If you are a trader, it makes sense to have multiple demat accounts. If you have only one demat account and in case the trading platform of your stockbroker has some issues or glitches, then you will not be able to exit from your position.

Let us assume that you are trading in options and you have two demat accounts. You are using one of your demat accounts and you have taken a certain position. However, you realise that this demat account is facing certain technical issues, and therefore you are not able to square off your position.

In this case, you can use your other demat account and take a position to hedge the position you had taken using your first demat account. This would not have been possible if you had only one demat account.

That being said, if you are a long-term investor, who buys shares and holds them for decades, then it does not make sense to have multiple demat accounts. This is because a long-term investor buys and sells shares once in a long while. Therefore, it is sufficient to have one demat account. Now, let us talk about the benefits of multiple demat accounts for a trader.

How can a trader benefit from multiple demat accounts?

• Multiple research updates and insights

If you are a trader, you need a lot of research input to take your decisions. If you have only one demat account, you will be able to access the reports and insights of only one broker. Given that such insights tend to be subjective, it is better to have insights coming from multiple brokers, which necessitates having multiple demat accounts.

• Use different demat accounts for different asset classes

If as a trader, you want to invest in multiple asset classes, such as shares, debentures, commodities, and derivatives, then it makes sense to have multiple demat accounts. This will allow you to use one demat account for only one asset class. It helps in segregating your portfolio and streamlines your day-to-day trading.

Conclusion

It cannot be denied that having multiple demat accounts is beneficial for a trader. However, it is also important to acknowledge that having multiple demat accounts is more expensive than opening one demat account.

If you have more than one demat account, you will have to pay annual maintenance charges and brokerage fees to multiple brokers. Therefore, before opening multiple demat accounts, you should analyse the costs and features of demat accounts offered by several brokers.

Moreover, you should open multiple demat accounts only if you are a trader. As already discussed, if you are a long-term investor who rarely buys and sells shares, then it makes sense to have only one demat account.