What are these?
These accounts integrate the savings, trading and demat accounts of an investor into one. They can be opened with any securities broking firm, which also has a banking arm. Other brokerages, which offer online trading services, enable the investor to link an existing account to the trading account, but in a 3-in-1 account, the investor has to open a bank account with the banking arm of the brokerage.
These accounts are not the only way to trade online. One can open accounts with standalone brokerages and link their existing savings account with the trading account. Compared with offline trading, online trading offers better speed and ease of execution.
What are the advantages?
These accounts offer some unique advantages.
They offer seamless transfer of money from the savings account to the trading account within a matter of seconds and one can argue that the safety of these transactions is higher. For example, in case of online trading accounts linked to a separate savings account, one has to go through a payment gateway with a separate login and password. This is an additional step and you have to ensure that it is fully secure. Moreover, you will have to share two sets of passwords online in this case. Additionally, in case the host server of your savings bank is not working for some reason, your transaction will get stuck and you will have to transact later. On the other hand, in case of 3-in-1 accounts, you can log into your online trading account and simply allocate funds from your savings account to your trading account and the transfer is immediate.
Last year, the Securities and Exchange Board of India (Sebi) made it mandatory for brokers to keep only those funds in a trading account as required for trades to be executed or for margin money, no idle funds were to be kept. This can be an irritant for investors operating offline accounts and where savings and trading accounts are separate. Basically, every month any excess money you have in a trading account will be returned and then if you want to buy more shares at a later date, fresh funds have to be used. In a 3-in-1 account, once you have allocated funds to the trading account, you can leave them there till you need to buy more shares or reallocate to your savings account as and when you please.
What are the disadvantages?
The major disadvantage with this kind of account is that if you don’t already have a savings account with the banking arm of the brokerage, you will have to open one and transfer money into that account on a regular basis. Secondly, brokerages that don’t offer 3-in-1 accounts may offer better pricing, so you may still prefer those over 3-in-1 accounts.