- Demat accounts offer convenience in the investments and trading, but they will also come with some of the charges.
- Opening a demat account will require a DP, which is a brokerage firm or a bank.
- DPs will require nominal opening charges or also offer a free demat account for a year.
- It is technically prudent to be aware of these charges and consider the potential investment implications.
What are demat account charges?
- A demat account charge or fee is the amount of the charge applicable when you will open and use your demat account for online trading.
- When you set up a demat account, it is very important to think about the charges that are associated with your demat account.
- The charges of the demat account can be categorized into 2 main categories:
- Operational charges, which include AMC tax, AMC, and many other additional charges.
- Demat transaction charges, which are the charges that are incurred by the brokers for the execution of the transactions for the customers, stamp duty charges, and the taxes applied to your trade.
- Demat account fees are levied by the DP for the upkeep and management of the demat account.
- The DP charges for each and every DP will vary to a great extent.
- DP will also act as a go-between for the investors and the depository and will keep the investor’s securities in an electronic form.
- Depending on the policy of the DP, demat account charges are typically deducted from the account of the investor monthly, quarterly, or annually.
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DIFFERENT TYPES OF DEMAT ACCOUNT CHARGES:
Demat account opening charges
- This is a one-time fee that is assessed by the DP when a new demat account is opened.
- Depending on the DP, the fees will range from 0 to a few hundred rupees.
- Moreover, it is completely free when you set up a 3-in-1 demat account with the bank.
- This will include a savings account, a trading account, and a demat account.
- However, most of the broking firms will offer seamless account opening via their online trading platforms and will also not charge account opening fees.
- Yet, the stamp duty, GST, and other statutory levies by the SEBI will be charged as applicable.
- To choose the best DP, always be ready to compare their demat account opening charges.
Annual Maintenance Charges (AMC)
- The DP will charge a yearly fee to maintain the demat account.
- AMC will vary as per the DP and the type of the account.
- Individual accounts will have a lesser AMC than the corporate accounts.
- The demat account will not have any rules about the demat account minimum balance or the holdings.
- Starting from June 1, 2019, SEBI has removed AMC for the debt securities up to Rs. 50,000 for the Basic Services Demat Account (BSDA).
Transaction fees
- DP charges for each transaction made on the demat account, such as buying and selling the securities.
- Transaction charges will be determined by the transaction value and will differ between the DPs.
- The fees are also typically a percentage of the transaction value or a flat fee per transaction.
- A transaction occurs every time the securities enter or exit your demat account.
- DPs will charge the transaction fees monthly.
- Also, the transaction charges will vary depending on whether you are buying or selling.
- There are some of the DPs that will only charge transaction fees when you sell the securities.
Custodian fees
- A fee that is charged by the depository for storing the securities in electronic form.
- This fee is usually a small percentage of the value of the securities and is also charged quarterly or yearly.
Dematerialization fees
- The DP will charge this fee for converting physical securities into an electronic format.
- Charges are also typically fixed as per the certificate and will also vary between the DPs.
Demat account safety charges
- Before the demat accounts were introduced, traders used paper-based security certificates.
- It was also their responsibility to keep these physical papers safe.
- DPs are now holding securities on behalf of their traders with the demat accounts.
- To be able to ensure the safety of these securities, DPs will charge a small demat account safety fee.
- The charges will depend on how many securities the trader will hold.
- A monthly safety fee is usually charged by the DPs.
- There is a fee that is attached to each International Securities Identification Number (ISIN) that will also range from 0.5 to 1 rupee.
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How to reduce the demat account charges?
- Opt for a BSDA if your holdings are below a certain threshold.
- Consolidate your holdings into a single demat account to reduce account maintenance charges.
- Consolidate a demat account with the lower transaction fees and annual maintenance charges.
- Be aware of the account closure charges and then choose an account with lower or no closure fees.
- Keep an eye on your account activity and avoid unnecessary transactions to minimize the charges.
- Negotiate with your demat service provider for reduced fees, especially if you are a high-value trader.
- Use online and electronic statements to save on physical statement charges.
- Opt for a discount brokerage that offers competitive demat account charges.
- Stay informed about any regulatory changes that will also impact demat charges in your region.
THINGS THAT CAN AFFECT YOUR DEMAT CHARGES
Account type
- Individual demat account charges differ from corporate account charges.
- Corporate accounts will typically incur higher fees as a result of the greater volume of the securities held and the additional compliance requirements.
Transaction volume
- The demat account number of the transactions increases with the transaction fees.
- Transaction fees for the regular traders could be greater than those for those infrequent traders.
Transaction value
- Transaction charges are typically a percentage of the transaction value. Due to this, investors who trade high-value securities may also face higher transaction costs than those who trade low-value securities.
Policy of the DP
- DP charges that are imposed by the DP may differ depending on their policies.
- Some of the DPs will charge less for certain types of accounts or transactions, while the others may charge more.
- You must compare different DP policies to know that you are not missing out on something.
Market conditions
- Market conditions will play an important role in the charges during the bull market.
- Transaction fees may be higher due to increased trading activity.
Conclusion
Demat fees are an unavoidable part of investing in the stocks in India.
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