A demat (Full Form- dematerialized) account is used to store financial securities in electronic format. Earlier, companies used to issue physical certificates for equity shares, and then, those certificates were physically traded in the market. In the old system, there were many issues, such as duplication of certificates, theft, signature mismatch, and many more. The introduction of demat accounts in 1996, eliminated these issues.
‘There is no such thing as a free lunch’ as quoted by John Ruskin, stands apt for everything that involves earning money. The same thing applies to the stock market. To use a Demat account and enjoy an effortless investing experience, you need to pay minimal charges.
Types Of Demat Charges
We will discuss demat charges that you need to bear, in order to open a demat account. Also, based on these points you can decide a suitable broker according to you.
Account Opening Charges
It is a one-time fee that is charged by the depository participants to open a demat account. However, recently many DPs have stopped charging any account opening fee. Some banks and brokers offer a three-in-one demat account, for free.
Annual Maintenance Charges
Depository participants annually charge you a nominal fee to maintain your account. Some DPs’ might not charge you in the first year as their promotional scheme, so you have to research before choosing any broker. Also, some of the participants charge a quarterly fee for maintaining the demat account and others may charge a lifetime fee.
Before 1996, companies used to issue physical copies of equity shares. Then, post-liberalization when the demat account was introduced, the Securities Exchange Board of India (SEBI) made it compulsory for firms to issue dematerialized shares. Therefore, to convert physical shares into electronic form, you have to pay dematerialization charges.
A transaction fee is charged on your account whenever you buy or sell any share. There are various ways to charge a transaction fee, some DPs charge as per the number of transactions whereas, some charge a flat fee for the entire month.
Earlier, there was always a sense of anxiety within traders and brokers. As there were a lot of issues regarding, theft of the certificates, duplicate certificates being handed over, and many more of such issues. Therefore, a demat account eliminates such risks and since the shares are stored in an electronic form, they are safer.
To keep your financial securities safe, depository participants charge a custodian fee. It is an annual charge, however, you will be informed by the DP in case of any changes.
Depository Participant (DP) Charges
Whenever an investor places a buy order the depositories hold these shares in their account in electronic form. For providing this service they charge a certain fee from the depository participants.
Since the depository participant is a mediator that bridges the gap between depositories and investors. The client as an investor pays the DP, and then the DP pays the depositories.
There are two depositories in Indian stock markets; Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).
The stock exchange market regulator SEBI charges Rs.10 per crore for the regulatory services. The fee is charged on both; buy and sell-side transactions.
Before opening a demat account, go through the charges by the depository participant, thoroughly. Compare the charges with other depository participants and then apply for a demat account.