Can a Person Have Multiple Demat Account in India? Is it Legal?

The use of demat accounts is essential when it comes to trading and investing in the stock exchange.

These accounts facilitate the storage of your securities in an electronic structure, streamlining the process of purchasing and selling shares, making it more fast and reliable.

However, you may be wondering whether is it legally allowed for a person to have multiple demat accounts?. In this article, we will go in detail of this matter, and assess the benefits and drawbacks of doing so.

Can a Person Have Multiple Demat Account in India?

Is it permissible to possess more than one demat account? Yes, it is. There are no legal limitations on the number of demat accounts one can maintain.

However, most brokers discourage multiple accounts because it increases their workload and maintenance costs. Additionally, multiple accounts can lead to confusion and raise the likelihood of errors in transactions.

What are the reasons for opening multiple demat accounts? There could be several reasons. For example, a trader or investor may open multiple accounts to spread the risk of their portfolio among different brokers.

This way, if one broker encounters technical glitches or other problems, the trader can still have access to their other accounts to continue trading.

Another reason to have multiple demat accounts is to take advantage of different brokers’ research and analysis capabilities. Different brokers may have varying levels of expertise in different sectors or industries. Therefore, by having multiple accounts, a trader can access different research reports to help them make informed investment decisions.

Lastly, some traders may choose to open multiple demat accounts to segregate their long-term investments from their short-term trades. By having separate suitable demat accounts, they can track their investments more easily and avoid confusion.

Also Read : How to Freeze and Unfreeze a Demat account

Legality of multiple demat accounts

Many traders may have a question about the legality of having multiple demat accounts.

To address this, we must look into the Securities and Exchange Board of India (SEBI)’s regulations. SEBI allows individuals to hold multiple demat accounts, but they must have a legitimate reason to do so.

The reasons may vary, such as being a joint holder in a demat account with someone else and wanting to open a separate account in their name or being a shareholder in a company and desiring to hold shares in the same company through a different demat account.

However, creating multiple accounts with the same broker under different names or fake identities is strictly forbidden and considered fraudulent, resulting in legal action.

Thus, traders must proceed cautiously and adhere to SEBI’s rules and regulations while maintaining their demat accounts.

Advantages and disadvantages of having multiple demat accounts

There are both advantages and disadvantages of having multiple demat accounts. Let’s explore them in more detail.

Advantages of More than one Demat account:

1. Diversified investment portfolio: Diversification is an essential element of managing an investment portfolio, and traders can achieve this by opting for multiple demat accounts. This enables them to distribute their investments across various sectors and industries, thereby mitigating the risks associated with market volatility and potentially yielding higher returns in the long term.
2. Better risk management: Effective risk management is a critical aspect of any trading strategy, and traders can achieve this by opening multiple demat accounts with different brokers. This allows traders to continue trading even if one broker experiences technical issues or other challenges. By managing risk, traders can focus on making informed investment decisions and maximizing their returns.
3. Access to multiple brokers: Access to diverse research and analysis capabilities is vital for making informed investment decisions. Having multiple demat accounts provides traders with a broad range of options to choose from, enabling them to access different brokers’ research and analysis capabilities. Since each broker’s research and analysis expertise varies, having multiple accounts allows traders to compare and analyze their choices.
4. Separation of long-term and short-term investments: By having separate accounts for long-term and short-term investments, traders can avoid confusion and monitor their investments more efficiently. This separation ensures that traders can easily track their investments and take appropriate action based on their investment goals. By avoiding confusion and maintaining clarity, traders can achieve their investment objectives more effectively.

Disadvantages of Multiple Demat Account :

1. Increased paperwork: Maintaining multiple demat accounts can result in increased paperwork and maintenance fees, creating a burden for traders who must manage various accounts and their corresponding documentation carefully. This task can be time-consuming and challenging.
2. Potential for confusion: Holding numerous demat accounts increases the risk of confusion and transactional errors. It can be easy to misunderstand account details or mistake which account was used for a particular transaction, leading to significant losses or errors.
3. Higher maintenance costs: Owning multiple demat accounts may result in higher maintenance fees, as brokers usually charge an annual fee for each account. This can add up to a considerable cost.
4. Difficulty in tracking investments: Monitoring investments becomes more challenging when traders have multiple demat accounts, especially if they are with different brokers. Careful tracking of each account is necessary to avoid lengthy and laborious procedures that consume time and effort.

Related Read : What is Basic Service Demat Account & What are its benefits over regular demat account?

Final Thoughts:

After careful consideration, it can be inferred that holding multiple demat accounts is not against the law, but it is crucial to adhere to SEBI’s guidelines and instructions when opening and maintaining these accounts.

Traders should have a legitimate reason for having multiple accounts and avoid using false names or identities.

While there are definite advantages to owning several demat accounts, such as increased investment diversification and better risk management, there are also corresponding disadvantages, such as increased paperwork, potential confusion, and higher maintenance expenses.

Ultimately, the decision to have multiple demat accounts depends on each trader’s individual needs and preferences. If a trader have solid reason for having multiple accounts and is prepared to manage the associated paperwork and maintenance costs, owning multiple demat accounts can be beneficial.

However, traders must carefully consider the potential drawbacks before deciding to establish multiple accounts.

Frequently Asked Questions (FAQs):

Q. Is it legal to have multiple Demat accounts in India?

A. Yes, it is legal to have multiple Demat accounts in India. The Securities and Exchange Board of India (SEBI) has not imposed any restrictions on the number of Demat accounts an individual can hold

Q. Can I Open two demat account with same Mobile number?

A. Yes , One can open two demat account with same mobile number and there is not restriction

Q. Can I Open more than one demat account with same broker?

A. No, one can not have more than one demat account with same stock broker. However, he can have two demat accounts with two separate brokers.

Q. How many demat accounts can be opened with a single PAN Card?

A. One person can open any number of demat accounts with one PAN Card. It is important to note that, one person can not have more than one PAN card in his name.

Q. Can I use multiple Demat accounts to avoid paying taxes?

A. No, using multiple Demat accounts to avoid paying taxes is illegal and can lead to penalties and legal action. Investors must comply with the tax laws and disclose all their income and investments, including those held in multiple Demat accounts.

Q. Are there any restrictions on transferring securities between multiple Demat accounts?

A. No, there are no restrictions on transferring securities between multiple Demat accounts, as long as the transfer is done within the regulatory framework and the necessary documentation is in place.

Don’t Miss to Read Below Demat Account Informative Articles:

• Difference Between Demat and Trading Account
• How to Open a Joint Demat Account – Benefits
• How to Convert Shares in Physical Format to Demat Format
• Demat Account Number Format : How To Find Your Demat Account Number?
• Basic Service Demat Account – Benefits & Drawbacks
• Types of Demat Account in India
• Can a Demat Account Be Opened Without a PAN Card?
• Minimum Amount Required For Opening A Demat Account
• Is Demat Account Safe? 5 Safest Demat Account In India
• How to Add a Nominee to Your Demat Account?
• How to freeze and unfreeze your demat account
• When Are Bonus Shares Credited in Demat Account?
• What is Demat Account Holding Statement and How to Download it?
• Understanding the Advantages and Disadvantages of Demat Accounts
• How To Close Your Demat Account Online?