Simplify investing with consolidated demat accounts

The benefits of consolidating your demat accounts

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.

Table of Contents

1. The benefits of consolidating your demat accounts
2. Key steps to consolidating multiple demat accounts

Key steps to consolidating multiple 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. 

1. The simple way to consolidate demat accounts is through off-market transfer of shares into the target demat account. For off-market transfer you must fill in the Delivery Instruction Slip (DIS) and submit the filled-up DIS form to the DP, clearly mentioning that it is an off-market transfer. Before submitting the DIS, double-check the ISIN numbers of the shares being transferred and the number of shares in figures and words.
   
    
2. From here on, the process is simple. The DP checks the DIS form and scrutinizes for errors. Once that is checked, the DP approves and instructs transfer into the target demat account. This way the shares in all the demat accounts can be transferred to the target demat account. This off market transfer has zero capital gains implication. Once other accounts show zero balance, you must check for any outstanding dues, clear them and then give account closure form to the DP.
   
    
3. It is slightly more complex if you are holding physical shares. If the names are matching, you can directly dematerialize the physical shares into the target demat account. It is not possible to sell physical shares, so dematerialization is a must. In case you are holding the shares in joint names, then you can dematerialize it into a joint Demat account and then do an off-market transfer into target demat account. 
   
    
4. There is a catch here. You cannot consolidate shares in a Demat account if existing stocks are either in a lock-in period or if securities are pledged for loans. The transfer cannot be executed until they are freed from the charge. When you consolidate shares, make it a point to appoint a nominee for the demat account to make transmission smooth at a later date.

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.