Multiple Demat Accounts Can Prove To Be Costly To Manage

It is very easy to open a demat account to invest in shares and other instruments but in this area, too, there is a need to ensure that the various accounts are managed properly.

One of the common things that has been seen for individuals is that they have multiple demat accounts and many of them are not used as they do not contain any securities. This can make it an expensive situation because there are charges related to these accounts, which can pile up and hence, action is required.

Here is how to handle the entire situation:

The equity markets have been on a roll since the last several years following Covid-19, and this has seen it hit new highs at regular intervals. Investors have also been quite active in the equity markets and they have been expanding their actions through the opening of new demat accounts as well as higher activity in existing demat accounts.

It has been seen that various brokerage houses are trying to lure customers to their offerings by giving them various incentives, including lower brokerage and also by waiving joining fees on the demat accounts. The tendency for a lot of people is to look at the various offers that are available and then go in for one which they think is the best. Sometimes, they also change their depository participants for some other reason since new demat accounts can be opened easily.

However, there is a lot of laziness when it comes to closing the old demat accounts and this has led to a situation where a lot of investors end up having multiple demat accounts in their name.

While opening a demat account is one thing, there is also the need to ensure that there is proper control over the accounts that are there. It is not uncommon to see people having multiple demat accounts, out of which some of them have a few shares or holdings, while others have nothing in them.

This ultimately shows up against the name of the investor because these accounts are active accounts and hence, when one looks at the Consolidated Account Statement of the various investments of the investor, then this will pop up as a long list of accounts that are held and operative.

The demat accounts sometimes are free to open, but soon there are charges that will start to accrue on them. This is in the form of maintenance costs that are levied on an annual basis. Depending on the number of holdings, too, there is a charge that is levied on the accounts.

This might not look to be much, but when one has multiple accounts, then taken together they start adding up. The other aspect is that there is also some effort that one has to spend, in terms of proper maintenance of the accounts to ensure that they remain active, which will include payment of the charges. As the numbers grow, all this will take up quite some time of the investor.

The best way to handle this kind of situation is to decide on a couple, or in case the portfolio is very large, then three demat accounts where the holdings will be maintained. Ideally, two accounts should be more than enough when it comes to a normal investor.

These accounts can have various holdings and the remaining accounts that are present can be shut down. This will ensure that there is a proper streamlining of the investments through this kind of consolidation.

At the same time, it will also become easier to manage and the various holdings will also be easily visible together, so that any decision that needs to be taken is done efficiently and effectively. The danger with keeping too many accounts is also that if they are linked to a similar number of trading accounts, then the management becomes even more difficult. Overall, this will ensure proper tracking of the investments too.

Arnav Pandya is founder of Moneyeduschool.