6 mins read . 08 Feb 2023
During our investing lives, we do open multiple demat accounts for different reasons. One reason could be that you changed your broker, so you changed the demat account along with it. Secondly, you may have opened a demat account to receive shares from your father or other relatives, which has stayed on. Normally, when people change jobs and change their bank mandate, they also change their demat accounts for easier mapping. In the process, you may end up with 6 to 7 demat accounts with some of your portfolios in each demat account.
What is wrong with that kind of scenario. Firstly, it is unwieldy and calculating your yearly capital gains and losses become unwieldy. Secondly, you have to inform each of these demat accounts in case there is a change in address or mobile number. Lastly, there is a cost angle to it. Each demat account costs in terms of annual maintenance charges (AMC) even if account opening is free. The answer to all these problems is to consolidate your demat accounts into just a couple of demat accounts.
Consolidation of demat accounts is a good idea as it reduces your cost and also makes it more manageable. The first thing you must do is to identify the principal account into which all or most of the demat accounts are consolidated. Ideally, consolidate into the account you currently use for trading and investing. It makes sense to have 2 demat accounts (one for investments and one for trading) but not more than that.
Consolidation of demat accounts into 1 or at the most 2 demat accounts is a good step. The investor will not end up paying the AMC (annual maintenance charges) on all the demat accounts and you also do not have to worry that your demat account could be frozen for inactivity. Ideally, keep just 2 demat accounts; one for the trading portfolio and one for the investment portfolio.
The process of consolidation into a target demat account is quite simple and also does not have any capital gains implications. There is a small cost to off-market transfers, but at the end of the day, there are a plethora of costs that you save and also make your tracking and monitoring very convenient. Do this before your portfolio grows beyond a point and consolidation then becomes a lot more complicated.