Demat account Charges to keep in mind while opening a Demat account

One of the best ways to reduce your Demat account charges is to open an account with a broker who offers you competitive brokerage plans.

Demat charges you should know before investing and ways to reduce them

If you have started your investment journey or are planning to do so, then the foremost thing you will come across is the Demat account. But do you know: What Demat stands for? What are the advantages of the Demat account? What is the use of the Demat account? What are the charges associated with the Demat account? How to bear the lowest Demat account charge? etc.

Don’t worry if you don’t know all of these because, in this article, we will discuss all things that will help you start your investment journey and help you make wise decisions right from the beginning.

Introduction to Demat account

Demat account basically stands for dematerialization account. It is an online account used for storing or holding all of your securities like stocks, mutual funds, exchange-traded funds (ETFs), bonds, etc., in a dematerialized form.

Thus you can say that the primary use of the Demat account is to store all of your investments at one place, irrespective of the securities.

Check out the below articles for more information:

Features of Basic Demat Account

What is a depository?

In a real sense, the depository is the one that will store all of your investments like stocks, bonds, mutual funds, ETFs, etc., in digital form. Thus the stocks you see in your Demat account are basically stored with the depository.

There are two main depositories in India:

  1. National Securities Depository Limited (NSDL)
  2. Central Depository Service Limited (CDSL)


But here, it should be noted that the depositories don’t directly deal with investors and open a Demat account for them because for this task, there are brokers, also referred to as Depository Participants (DPs), who work as an agent for the depository.

Reasons to have a Demat account

There are various reasons why one requires a Demat account, but the most prominent of them are as follows:

A. Safety: One of the major factors for using a Demat account is safety. As it is an online account, your investment and securities are safe from theft and any other kind of fraud.

B. Time: The time taken in the history when the Demat account wasn’t present used to be long and tiresome, but due to the Demat account, everything is digital and just a click away. So much time is saved by investors, brokers and other agencies involved in the entire process.

C. Auto-update: Any securities bought or sold by you will be updated directed in your Demat account, and thus there is no need to keep track of them manually.

D. Common account: Demat is the common account for you, while you can still use multiple bank accounts and various trading accounts. Thus, your common Demat account will reflect all of your investments and securities.

E. Cost-efficient: As the Demat account is a digital/online account, much of the cost is saved due to no fees or expenses for physical paperwork during each and every transaction.

Demat account charges

There are various kinds of charges involved when you have opened a Demat account. Thus utmost care needs to be taken while dealing with them; else, you may end up paying a lot more amount of charges. Let’s discuss the most prominent of them one by one:

A. Demat account opening charges: This is the first charge you will face as you open the Demat account. As the name suggests, the Demat account opening charge is the charge your broker will charge you to open a Demat account. This charge may vary from broker to broker, but mostly it will range from 300 to 500. But many brokers don’t charge any Demat account opening charge, and these are mostly the discounted brokers.

B. Demat annual maintenance fee: This is the most primary charge that your broker will charge you for maintaining your Demat account and providing you various services during the entire year. The charge may again vary from broker to broker, but it mostly ranges between 300 to 500. 

C. Demat transaction charges: This is the charge which will impact your pocket the most as whenever you buy or sell any of the securities like stocks, bonds, mutual funds, ETFs, etc., there will be a charge associated with it. Most brokers levy a fee that may vary based on the number of stocks or based on the total transaction value, and it is most likely the biggest portion of the charge that you will need to bear with. But the scenario is changing with more and more discounted brokers entering the space because they charge nothing on delivery trades and only about Rs. 20 per trade on commodities and future and options trades.

D. Demat Safety Charges/Custodian Fees: As one of the primary purposes of the Demat account is to safeguard the securities of investors thus, they also charge a small fee for the same, which is known as custodian fees. However, the DPs are required to pay this charge to depositories as a one time charge, so most DPs/brokers don’t charge you for the same, but still, you can confirm about the same before you open your account with your favourite broker. This fee mostly ranges between Rs. 0.5 to 1 for every International Securities Identification Number.

E. Miscellaneous Charges:  There are many other small changes that the investors mostly neglect, but you need to have at least some knowledge about them.

  • Securities Transaction Tax/Commodities Transaction Tax (STT/CTT)
  • SEBI Charges
  • Stamp Duty
  • GST
  • Clearance Charges

All of these charges are in a very low proportion; thus, they are mostly neglected, but when you choose your broker, you can just check how much they levy as these charges/fees.

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Ways to reduce Demat charges

The following are a few ways through which you can reduce the Demat charges:

  • You can open a Basic Service Demat Account (BSDA), which is mainly designed for new or small investors. And the main benefit of this account is that the annual maintenance fee will be waived off. But the only thing you need to take care of is that you can’t have a holding of more than Rs 2,00,000 in this type of account. 
  • You can find a broker or brokerage firm that can offer you the lowest possible fees while not downgrading the services. Mostly for a new investor, a discount broker is perfect as they mostly waive the account opening fees and charge a flat fee as brokerage rather than based on the number of transactions or the amount of volume traded. 

Thus, you can ensure that you are bearing the lowest Demat account charges using the above ways.

Summary:

  • A Demat account is an online account that holds all of your investments.
  • Brokers, also known as DPs, are the agents of the depositories.
  • There are primarily two types of brokers discount brokers and full-service brokers.
  • There are mainly two types of accounts 2-in-1 and 3-in-1.
  • Majorly three documents are required to open a Demat account, i.e. Pan Card, and the other two are the Identity Proof and Address Proof.
  • Demat account has various advantages, such as safety, time, auto-update, common account, cost-efficient, etc.
  • There are various charges of the Demat account which need to be kept in mind, like account opening charge, the annual maintenance fee, transaction charge, custodian fee, GST, stamp duty, STT/CTT, SEBI charges, etc.
  • As a new investor, you can open an account with a discount broker for price benefits and use a BSDA account to get a waiver on the annual maintenance fee.

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