The Benefits of Consolidating DEMAT Accounts
To trade in the stock market, you need three things –a bank savings account, trading account and a DEMAT account. Many investors own multiple DEMAT accounts – there’s nothing wrong with that. Like multiple savings accounts, you can open multiple DEMAT accounts. You can however, benefit to a great extent if you consolidate all your DEMAT Accounts.
Upon purchasing a stock or a share of a company, you own a part of the company. As a proof of this ownership, you’re given a certificate. This is now stored electronically in a DEMAT or dematerialized account. All certificates are held in two central depositories – CDSL and NSDL. They hold your share certificates on your behalf.
Who offer’s DEMAT Accounts?
Banks, brokers and other financial institutions offer DEMAT Accounts. These bodies act as an intermediary between the depository and the investor. As a result, they are called depository participants (DPs).
These DP’s charge a fee; monthly or annual for maintaining your account. This fee varies according to the depository that holds your shares or stock. A fee per transaction is also levied. This is usually a small percentage of the total transaction.
Combining Your DEMAT Accounts:
Many people have multiple DEMAT Accounts. People buy shares on behalf of their spouse, father, mother or children. You have to pay the aforementioned fee to the broker for every transaction 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.
The hassle of unwanted paperwork is also reduced with this process along with ease in filing your taxes.
The transfer of holding is simple. All you need is a delivery instruction slip to the broker with the required details of the transfer value and the destination account. An important point to note is that you need to mark this as an ‘off-market transaction’.
A single account with a DP will need a single request form. With joint accounts, this slip has to be signed by all owners. However, many DPs charge fees for transfer of securities. This can be a fixed up (Usually between Rs 25 – 100) or a percentage of the total value of securities (Usually 0.01% – 0.04%). A huge benefit of accounts in the name of a single person is that they are not eligible to taxes. You can transfer shares up to Rs 50,000 in a year to a relative and this is tax-exempted. Any value higher would be counted as capital gains, and taxed accordingly.
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