Nithin Kamath, co-founder and CEO of discount broking platform Zerodha, shared a powerful insight from his own investing journey that sheds light on a simple yet effective behavioural and tax strategy — using a secondary demat account.
In a post on social media platform X, Kamath wrote, “When I was trading actively (before Zerodha), I had an offline demat account where I held all my investments and an online account for all my trades.”
His idea was simple: one offline account for long-term investments and another online for active trading. The intention was to create friction between investing and trading.
This was a way to avoid the temptation of “trading” my investments, said Nithin Kamath.
He further explained that if he had to sell any of his investments, the effort involved was significantly higher and didn’t just happen at the click of a button.
“I had to physically fill out the delivery instruction slips and send them to the broker to move holdings to my primary demat and then sell them,” Kamath wrote in the social media post, adding that this is a good behavioural hack to deal with impulse selling.
He also revealed that the best returns were on stocks that he held the longest in his secondary demat. Takeaway? A little inconvenience can serve as a powerful tool for better investing behaviour.
Taxation benefit of two demat accounts
Well, that’s not all. Apart from wealth preservation, there is one more major benefit of this strategy: taxation.
In India, when you hold both short-term and long-term stocks in the same demat account, the FIFO (First In, First Out) method applies to determine holding periods and tax liabilities.
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, explained Zerodha in a blog.
To enable these practices in your investing, Kamath announced that Zerodha has also launched the option of a secondary demat. “You can now open a new demat and use it to segregate your long-term and short-term holdings and smartly manage the tax impact on your holdings,” he added.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
