There are three key requisites for trading in the stock market – a bank savings account, trading account and a demat account. Just like multiple bank accounts, many investors also own many demat accounts.
However, there are benefits of consolidating all accounts. Here’s a look:
• When you buy a share, you own a portion of a company’s assets. To prove your ownership, you are given a certificate. Today, this certificate is electronically available in your demat or dematerialized account. All certificates are held in two central depositories – CDSL and NSDL. They hold your share certificates on your behalf.
• Banks, brokers and financial institutions offer demat account services. They are called depository participants (DPs). They act as an intermediary between the two depositories and the investor.
• The DPs charge an annual or monthly fee for maintaining your account. These vary according to the depository that holds your shares. They also charge a fee per transaction. These may just be a meagre fraction of the total transaction.
• Often you buy shares on behalf of your spouse, father, mother or children. For this purpose, you may create a new joint demat account. As a result, many investors have multiple demat accounts.
• Whether these are with the same broker or different firms, you will have to pay fees for each account. For a single account, this cost may be negligible. But, when put together, it could cost you thousands of rupees. A single account will thus cut down the amount you pay.
• Not just money, but consolidating your accounts will also save time and paperwork in maintaining the accounts as well as tax filing.
• Transferring your holdings is very easy. All you have to do is submit a delivery instruction slip to your broker with the details of the transfer value and the destination account. It is as simple as writing a cheque. Remember to mark this as an ‘off-market transaction’.
• If all your accounts are with a single DP, you can also file a single request form. However, they have to be singularly owned. In case of joint accounts, the delivery instruction slip has to be signed by all owners.
• However, many DPs charge fees for transfer of securities. These could either be a fixed sum between Rs 25 and Rs 100 or could cost 0.01-0.04% of the value of securities.
• The transfer is also not eligible to taxes if the accounts are held by the same person. Transfer to the accounts of relatives is also tax-exempt if the total value of the shares is less than Rs 50,000 in a year. Any value higher would be counted as capital gains, and taxed accordingly.
To learn more about Demat account and various FAQs related to it visit kotaksecurities.com FAQ
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