Zerodha CEO Nithin Kamath recently shared a powerful insight from his personal investing journey, revealing a simple yet effective strategy for better financial behaviour and tax management: using a separate demat account.
In a social media post, Kamath explained that before he founded Zerodha, he maintained two different accounts — one offline account for all his long-term investments and a separate online account for his active trading.
When I was trading actively (before Zerodha), I had an offline demat account where I held all my investments and an online account for all my trades.Nithin Kamath
When I was trading actively (before Zerodha), I had an offline demat account where I held all my investments and an online account for all my trades. This was a way to avoid the temptation of "trading" my investments 😬
September 10, 2025
If I had to sell any of my investments, there was effort…The goal was to create a deliberate "friction" between the two. He realized that this was a way to prevent the temptation of "trading" his investments. If he wanted to sell any of his long-term holdings, it wasn't a simple click of a button. He had to manually fill out delivery instruction slips and send them to his broker to transfer the shares before he could sell them.
AdvertisementThis small inconvenience served as a powerful "behavioral hack" against impulse selling, noted Kamath. Unsurprisingly, he noted that the best returns came from the stocks he held the longest in his secondary account.
Beyond the behavioral benefits, this strategy also has a significant advantage for taxation. In India, when an investor holds both short-term and long-term stocks in a single demat account, the tax department applies the First In, First Out rule. This means the first shares purchased are considered the first ones sold, which can complicate tax calculations. By segregating long-term holdings into a secondary account, investors can ensure that FIFO rules are applied separately to each account, making tax filing more straightforward.
AdvertisementRecognising the value of this approach, Zerodha has now launched the option for clients to open a secondary demat account. This allows them to easily separate their long-term and short-term holdings, giving them better control over their investing habits and tax implications.
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