Nithin Kamath Shares Investing Trick To Leverage Secondary Demat Account

India is witnessing an investing boom as more people are exploring the securities market for investment opportunities. In the month of July 2025, the total number of demat accounts in India exceeded 200 million. However, investors often don’t understand the time horizon required to generate the returns they desire, and often end up making frequent trades. Zerodha founder and CEO Nithin Kamath revealed his personal hack to resist this temptation and hold positions for a longer time period.

Second Demat Account

Kamath wrote in a post on LinkedIn that before becoming an active trader he used to have an offline demat account in addition to his primary demat account, which helped him to resist the temptation to trade frequently. He added that the offline demat account helped him in doing so as he had to physically fill out delivery instruction slips to move the securities to his primary trading account and then sell them.

“If I had to sell any of my investments, there was effort involved. 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 said.

FIFO And Long-Term Investment 

Kamath also mentioned that apart from helping him in restraining the temptation to sell, having a secondary demat can also help in handling taxes more efficiently. According to a circular by the Income Tax Department, the First In First Out (FIFO) rule is followed when an investor sells his or her shares. For instance, if an investor has invested in shares of a company with a long-term investment horizon, but also wishes to sell some of the shares in the short-term, the oldest shares will be the ones to be sold first. 

Benefits of Lower Taxation 

Let’s understand this with an example: Let's say an investor purchases a total of 1,000 shares of XYZ worth Rs 10 each in January and the price increases to Rs 15 apiece in June. The investor may want to book some profits and sell some of the shares. However, anticipating further momentum, the investor waits and buys an additional 1,000 shares at the rate of Rs 15 per share. Later in the same year, the price of the stock rises to Rs 18 per share and the investor books profits by selling 1,000 shares. Without a secondary demat or demat ‘de-coupling’, the oldest shares purchased by the investor will be sold, these shares were purchased at Rs 10 each resulting in a profit of Rs 8 per share. The sale will result in levy of short-term capital gains (STCG) tax and will deplete the long-term holding the investor has.

On the other hand, if the investor has a secondary demat account, he or she can transfer the shares purchased in January to the secondary demat. Selling only the shares which have been purchased in June. This results in a slightly lower profit of Rs 3 per share. However, the investor will continue to hold their long-term position in the stock and also be taxed less, as the capital gains of Rs 3 per share are lower than Rs 8 per share are lower.

“In the depository system, the investor can open and hold multiple accounts. In such a case, where an investor has more than one security account, the FIFO method will be applied account-wise. This is because in case where a particular account of an investor is debited for sale of securities, the securities lying in his other account cannot be construed to have been sold as they continue to remain in that account,” the Income Tax Department said in its circular.

Higher Returns Due To Longer Time Horizon

Kamath added that having a secondary demat account can be helpful for investors. He also added that some of his best returns have come from the stocks he held for a longer time horizon in his secondary demat.

“Unsurprisingly, the best returns were on stocks that I held the longest in my secondary demat,” Kamath said in his LinkedIn post.

Kamath added that Zerodha has also rolled out the feature of adding a secondary demat account. However, investors can also create a secondary demat account by contacting a broker different from their existing one and trade with a primary and a secondary demat.

Notably "demat decoupling" is not a formally recognised term. However, separating your demat account from your trading account can offer some advantages, such as the tax-benefits and enhanced security. Keeping your long-term investments in a separate demat account can help in reducing the chances of unauthorised access to your entire portfolio. 

Other benefits include the psychological ring-fencing of your short-term and long-term investments so that you can maintain long-term positions while fulfilling your short-term goals. Opening two demat accounts with separate brokers for the purpose of demat decoupling can also give you access to the different research tools provided by them.

Notably "demat decoupling" is not a formally recognised term. However, separating your demat account from your trading account can offer some advantages such as the tax-benefits and enhanced security. Keeping your long-term investments in a separate demat account can help in reducing the chances of unauthorised access to your entire portfolio.

Other benefits include the psychological ring-fencing of your short-term and long-term investments so that you can maintain long-term positions while fulfilling your short-term goals. Opening two demat accounts with separate brokers for the purpose of demat decoupling can also give you access to the different research tools provided by them.