You can now
open a secondary demat account
with zerodha to separate your long-term investments from short-term trades.
The benefits of opening a secondary demat account with Zerodha are as follows:
- Efficient tax handling through separate FIFO calculation: As per the ITD circular, First In First Out (FIFO) method shall be followed when you have more than one security in your demat account. You can transfer your long-term holdings to a secondary demat account to ensure your short-term trades aren't affected by FIFO rules during tax filing. FIFO will be applied separately for each demat.
Example scenario: Let's say you are investing in ABC Ltd with both long-term and short-term strategies.
Timeline:
- January 2024: Buy 100 shares of ABC at ₹100 each (long-term investment)
- June 2024: Stock price rises to ₹150. You want to do some short-term trading
- June 2024: Buy another 100 shares at ₹150 for quick profit
- July 2024: Stock hits ₹180, you decide to sell 100 shares
Without secondary demat account:
- Under FIFO rules, you must sell the oldest shares first
- You'd sell the January batch (bought at ₹100)
- Profit = ₹180 - ₹100 = ₹80 per share
- Total profit = ₹8,000
- Problem: Your long-term holdings are gone, and you pay short-term capital gains tax on ₹8,000
With secondary demat account:
- Transfer your January long-term holdings (100 shares at ₹100) to secondary account
- Keep June short-term holdings (100 shares at ₹150) in primary account
- When you sell in July, FIFO applies only to your primary account
- You sell the June batch (bought at ₹150)
- Profit = ₹180 - ₹150 = ₹30 per share
- Total profit = ₹3,000
Your long-term investment remains intact in the secondary account, and you pay tax only on ₹3,000
Please consult your Chartered Accountant (CA) or tax advisor before making tax or financial decisions. Please don't consider this article as professional advice. Tax and financial situations vary for each individual, and laws or regulations may change over time.
- Portfolio organisation: Since shares in your secondary demat account will not appear on Kite and can only be viewed on Console, this helps you keep long-term and short-term investments separate, maintaining investment discipline.
- Prevents impulsive selling: Since shares can only be sold from your primary account, and it takes 24 hours for shares to be transferred from secondary to primary, you cannot instantly sell your long-term holdings when the market falls. This transfer time helps you avoid panic selling and gives you time to think through decisions, making more informed choices instead of acting on emotions.
What's the advantage of having a secondary demat account with Zerodha over having accounts with different brokers?
Having a secondary demat account with Zerodha has these advantages over using different brokers:
- Tax filing: All your trades are in one place, making it easy to file taxes with Zerodha's superior Tax P&L reports.
- Prevents panic selling: When markets crash, you might want to quickly sell your long-term investments out of fear. With different brokers, you can sell your investments instantly from each account. But with Zerodha's secondary account, you need to transfer shares first, which takes one day. This waiting time helps you calm down and stick to your long-term plan.
- Easy management: You use one login for all accounts and see everything in one place, instead of managing multiple logins with different brokers.