FREE DEMAT OFFER: Avoid this TRAP

Dear Readers,

In my regular interactions with readers and financial planning clients, I see various instances where big companies and broking houses give an offer for free demat account.

Mostly this happens when as an employee, you receive an e-mail from your employer company’s HR that so and so company’s representatives have set up a desk today at our premises and are offering you a  free demat account (as if they are doing a big favour and HR has negotiated something big for you)….

And as the tendency goes, we try to lap up whatever is offered to us for free, without understanding whether we require it or not.

A logical argument will be: I have to just do some paperwork, and after all its for free, not a single penny I am paying, why should I not go for it?

free demat

First you need to understand that no company is here to do social service – by offering free demat, they are just creating a bait for you.

They assume (and rightly so!) that once you are signed up, you will start trading in equity via the demat account.  With the trading that you do, they will start to earn brokerage on that amount, which is their income.

Also, what the companies do not disclose that the demat account is free for only one year. So, from the second year, even if you continue to do stock trading or not, they will keep on billing the annual charges to you.

So, by sacrificing an annual fee of say Rs. 500, these companies have got you into stock trading from which they earn their brokerage and also earn annual fees also from the second year – good deal no?

Another hassle is that once you realise that having an account and maintaining the stuff that comes with it (demat slips, passwords etc.) becomes a pain for you and you want to clean the clutter, you will visit the branch to get it closed, then you will realise how difficult it is to close the account.

As compared to banks where any branch can take down the request for closure, and you need not visit the branch where your account is situated, here the case is different. They will try to create every possible roadblock in your way so that you change your mind to close this account.

They will tell you to go to another branch, which is located in a very remote corner of the city. The way the account closure process is designed makes a lot of people not bothering to close the account, and they keep that account and keep paying the annual charges without any benefit.

First of all, you need to keep in mind that investing directly in stock market is very very risky game and it is not everybody’s cup of tea – I always advise DO NOT invest directly in stock markets- invest in 1-2 good mutual fund, which is a lot safer way and you can get earn near same returns in long term with MUCH LESSER RISK.

When these companies offer demat account, they do not even bother to find out whether a person can take that much risk….to whom they are selling this demat account CAN actually take that much risk to invest directly in stock markets, what is his family profile etc.  

But then, why should they???….they have to meet their targets of opening x no.  of accounts, otherwise they will get fired from their job …

Also, one more thing I have noted – what these companies try to cash in on the investor temptation of ordinary investor to try something new – (an investor thinks: oh mutual funds are down for so many years, let me try some stock trading, I’ve heard a friend made a lot of quick money from that…..). Such thoughts make people “try” it out…..and it’s actually similar to smoking, someone gives you a cigarette, you try how it is for the first time, and then get hooked to it and destroy your health….

So, the next time someone gives you an offer for a free demat, ask yourself, do you really need it for planning your financial goals, or will it add one more complication in your financial life?

To sum it up:

  • Give such demat offers a miss
  • Help others become aware and not to fall for such offers
  • keep your relentless focus on your financial goals
  • keep your finances lean
  • invest through mutual funds only   

OVER TO YOU:

What are your thoughts on such offers?

Do you think these demat offers help the investor or the brokerage companies?

Any experience you want to share on demat/stock dabbling…