List of All Demat Account Charges and How to Reduce the Fees
A Demat account is a digital repository of shares and securities that allows holding multiple investments in electronic form. As per SEBI regulations, it is mandatory to open a Demat account to invest in the stock market. But just like a bank account, opening a Demat account also has its charges. This includes opening fees, annual maintenance fees, brokerage fees, transaction charges, etc.
Knowing these charges will help you plan your finances better. This post breaks down all the different charges and fees of a Demat account. Read on!
Demat Account Charges and Fees
Here’s a list of different charges and fees associated with a Demat account:
- Demat Account Opening Charges
Financial institutions used to charge anywhere from Rs. 700 to Rs. 900 for opening new Demat accounts. These days they charge a nominal fee, while some do not charge any opening charges. Some offer 3-in-1 accounts (Demat account, trading account and bank account), making it easy and convenient for first-time investors.
- Annual Maintenance Charges
Depository Participants (DPs) typically charge around Rs. 300-Rs. 900 as annual maintenance charges (AMC) for their services. Account holders have to pay them in advance every year. Some DPs charge quarterly fees or lifetime fees of around Rs. 2,000. A few DPs offer nil Demat AMC for new account holders for the first year but full AMC from the second year.
- Custodian Fees or Safety Charges
DPs (including banks, stockbrokers and trading platforms) charge a nominal amount (around Re 0.5-1) every month as safety or custodian fees for every security. The DP pays this directly to one of two depositories- NSDL and CDSL. Some companies may waive this charge.
- Brokerage or Transaction Charges
Unlike some Demat account charges that some DPs may waive, transaction or brokerage charges are always applicable. This charge is levied every time a security enters or leaves your account and depends on the type of security and transaction. Some DPs charge flat Demat brokerage charges for all transactions in a month, while others charge an amount based on the number of transactions.
- Demat Charges
This fee is applicable for converting physical shares or share certificates to a digital form. Different financial institutions have different Demat charges, though it is usually nominal.
- Additional Demat Account Charges
This can include administrative charges for DIS (Delivery Instruction Slip) and fees for the online DP facility. In addition, you may have to pay stamp duty, GST, and other small fees.
How to Reduce Demat Account Charges?
Here are some tips you can follow to reduce charges on your Demat account:
- Open a Demat account with a brokerage firm that offers the most competitive prices. Compare the plans on the market to find the best rates.
- If you are not an active trader, you may open a Basic Services Demat Account. These are low-cost Demat accounts with a holding limit of Rs. 2 lakh and nominal AMC.
- Open an account with a brokerage firm offering discount brokerage plans. This allows heavy traders to save a fortune as these plans carry flat charges regardless of the number of transactions.
Benefits of Having an Online Demat Account
- It reduces the risks inherent in paper-based share certificates.
- A Demat account allows easy online access to your investments and statements.
- Investors can convert physical shares to electronic form and vice versa upon request.
- It allows investors to automatically receive stock dividends, splits, bonus issues and interest via ECS (Electronic Clearing Services)
- Besides shares, it can hold investments such as mutual fund units, bonds, government securities, ETFs (Exchange Traded Funds) in one place.
Also Read: Step-by-Step Guide to Opening a Demat Account Online
Things to Keep in Mind before Opening a Demat Account
- Security: Since a single platform allows you to hold and trade securities, its robustness and security are essential to keep your savings safe. The Demat account must offer the highest level of data security with high-grade encryption.
- Charges: While many financial institutions offer free account opening, it is important to consider all other charges. AMC and transaction fees are two of the most important costs to consider as they will affect your returns.
- All-in-One Services: You should ensure that both your broker and DP are the same to make the Demat and trading process simpler. Otherwise, you will face the hassles of submitting DIS on time or face losses.
- Quality of Support Services: The quality of a DP also depends on how it provides ancillary services and deals with customer grievances. Factors such as time taken to dematerialise physical shares and credit to Demat account indicate the service experience.
Also Read: Joint Demat Account: Meaning & Steps To Open Joint Demat Account Online
Final Word
A Demat account is an essential tool for any investor in the stock market. You can use it to hold, trade and monitor all sorts of securities easily and cost-effectively. Before opening one, you should check all applicable Demat account charges to optimise your trading experience.
FAQs on Demat Account Charges & Fees
- Can you open more than one Demat account?
Yes, it is legal for anyone to open multiple Demat accounts in their name. However, an investor can open only a single Demat account with a Depository Participant (DP) or a broker. In other words, you can only open one more Demat account with another broker.
- How does a Demat account work?
The stock exchange matches a ‘sell’ request from an investor with a ‘buy’ order from another investor. Once this order is matched, the stock exchange forwards them to a clearance house, settling the trade. Now, the shares that you have bought are credited to your Demat account while being debited from the seller’s Demat account.
- What are the Demat account charges applicable for a mutual fund?
Depository Participants charge a flat fee for converting physically held mutual fund units into dematerialised form. They also charge a small flat fee for the redemption of mutual fund units and reconversion of fund units into physical form.
- What are the various pricing plans of Demat accounts?
The basic plan involves a flat pricing plan where the brokerage remains the same regardless of trading volumes. In the case of volume-linked pricing, the charges decrease as trading volume goes up beyond a certain limit. Some brokers also offer pre-paid pricing where traders pay the brokerage upfront at discounted rates.
- How can you use a Demat account to buy/sell shares?
To trade using a Demat account, first, you have to link your trading account and bank account with it. You can add funds to the trading account from your bank account and place an order to buy shares. Once the order matches, you will get the shares in your Demat account within two business days from the transaction date.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
