In order to trade in the stock market, you need to open both a demat account and a trading account. A demat account holds all your securities (shares, debentures, derivatives, mutual funds, etc.) electronically. As a result, you do not have to worry about maintaining paper certificates for your securities. And, a trading account provides you with an interface which can help you buy and sell securities in a seamless manner.
As per the prevailing regulations in India, people can have multiple demat accounts. However, they cannot open more than one demat account with a depository participant (DP).
A demat account is linked to a trading account, which in turn, is linked to a bank account. However, a question arises: Can more than one demat account be linked to a trading account? The short answer is ‘yes’. You can link multiple demat accounts to one trading account.
How can you link more than one demat account to a trading account?
Suppose you already have a demat and a trading account with ‘Broker A’. Now, you want to open a new demat account with ‘Broker B’. You may have your reasons for opening another demat account. For example, you may choose one demat account for day-to-day trading and the other account for long-term investing. This is perfectly fine because the regulations allow you to do so.
But, you want to link the demat account you have with Broker B with the trading account you have with Broker A. You can do it by following these steps:
-
You need to check whether Broker A allows the trading account you have with him to be linked to the demat account you have with Broker B. If Broker A allows it, well and good. But Broker A may not allow it. In that case, you cannot link the trading account with Broker A to the demat account with Broker B.
-
You should also check with Broker A as to how many demat accounts you can link with the trading account you have with him. Remember that it is a service and therefore will come at a cost. So, ensure to check with Broker A about the charges for the same.
-
After following the above two steps, you need to check with Broker A for the process of linking the demat account with Broker B with the trading account with Broker A.
By now, you would have understood that this entire process depends upon Broker A. Investors are mostly advised to have their demat and trading accounts with the same broker. Having these accounts with different brokers may pose them operational challenges.
That being said, there are also benefits of linking multiple demat accounts with one trading account. If you can do so, you will not have to move from one trading platform to another to execute a trade.
Meanwhile, you should also be aware of the risks involved in linking multiple demat accounts with one trading account.
Let us go back to our example. You have a demat account each with Broker A and Broker B. However, you have a trading account only with Broker A. Both the demat accounts are linked to the trading account with Broker A.
You intend to sell the shares you have with Broker B through the trading account you have with Broker A. In this case, you have to settle the trade within T+2 by moving the securities to Broker A’s pool account.
If you are unable to do it in time, the stocks will have to go into an auction and you will be required to pay the difference between the auction and selling price.
Conclusion
Linking multiple demat accounts with one trading account has its benefits. However, it can also pose operational challenges. Therefore, the best thing to do is to check with all the brokers involved to ensure that you do not face any problems in the future.