Understanding the Different Demat Account Charges
When you decide to invest in shares, the first account you need is a Demat account. Traditionally, physical share certificates were issued where shareholders were responsible for the safekeeping of the certificates. Also, when the shareholder sold the shares, the physical certificates had to be sent to the registrar of the company to get the name changed.
However, to remove paperwork from the process, SEBI introduced the Demat system in 1996. Now, shares were only electronic entries in an account, and no physical certificates exchanged hands. Today, it is mandatory to hold shares in the Demat form if you want to trade them on the stock exchange.
Also Read: How to Convert Physical Shares to Demat?
To open a Demat account online, you need to approach a Depository Participant (DP). However, before you open a Demat account, it is important to understand various charges associated with it. In this article, we will talk about all the different Demat account online charges that you can come across.
A Demat account can hold a range of securities like shares, mutual fund units, ETF units, bonds, and government securities. To ensure management and governance of the Demat account, SEBI mandated that all investors and traders should open a Demat account online with either NSDL or CDSL. Each of these depositories has DPs or Depository Participants who open Demat accounts on behalf of the depository. These DPs levy certain charges for providing their services as listed below.
Demat account charges
Here is the list of Demat account online charges that you need to be aware of:
- Account Opening Charges Many DPs charge account opening charges to open a Demat account online. While some DPs charge a nominal amount, many DPs have started offering Demat accounts with zero account opening charges. However, if there are any statutory or regulatory charges applicable, then those will be charged to you. Therefore, before you open a Demat Account online, make sure that you go through the schedule of charges carefully.
- Annual Maintenance Charges
Apart from the account opening charges, DPs tend to charge an annual account maintenance charge for your Demat account too. These charges can vary, and hence, you must understand these Demat account charges before signing the account opening form. While some DPs might waive off the annual maintenance charges for the first year, others might offer some other packages.
Also, SEBI has mandated DPs to offer a Basic Services Demat Account (BSDA) where the DP cannot charge an annual maintenance charge if you are holding only debt securities up to ₹50,000. If the debt holdings are more than ₹50,000 but less than ₹2 lakhs, then the DP can charge a maximum annual maintenance charge of ₹100+taxes.
- Custodian Fees When trading used to happen in physical share certificates, traders were responsible for the safekeeping of the certificates. However, when you open a Demat account online, this responsibility rests with the DP. Hence, DPs charge a small custodian fee based on the number of securities in the Demat account.
- Transaction Fees
When you trade shares, your Demat account springs into action. If you buy shares, then the DP needs to ensure that the credit is received and passed to your account. If you sell shares, then the DP needs to ensure that the shares are transferred to the broker at the right time. DPs charge transaction fees for this service.
Some DPs charge it on every transaction, while others charge a fixed monthly fee. Hence, before you open a Demat account online, check the transaction charges and make sure that it is competitive.
- Off-Market transfer charges Sometimes, you might want to transfer shares to someone you know without entering into a trade on the stock exchange. This is known as an off-market trade. If you want to transfer shares to say your brother, then you will execute an off-market trade. Most DPs have Demat account online charges for off-market trades too.
- Pledge-related charges Securities can be pledged as collateral for loans. If you avail of a loan against securities, then the DP will charge you when you pledge the securities and unpledged them.
Also Read: What is Collateral Amount in Demat Account?
- Dematerialization Request charges If you are in possession of physical share certificates and want to dematerialize them, then you can approach your DP for the same. Most DPs charge a nominal amount as dematerialization request charges.
- Re-materialization Request charges You can re-materialize your shares at any time. This means that you can ask the company to issue physical share certificates to you whenever you want. However, you must remember that you cannot trade shares in the physical format on the stock exchange.
- Other Demat Account charges
There can be various other Demat account online charges like failed DIS charges, account closure charges, mailing charges if you ask for an ad-hoc account statement, taxes & cess, etc.
Every DP will have a schedule of charges on its website. Make sure that you go through it and understand all charges before opening a Demat account.
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Frequently Asked Questions
No. You are charged brokerage when you trade in shares. Demat Account online charges are ones that are levied even if you hold the shares without buying or selling any more shares. Hence, if you plan to buy and hold shares for a long time, then you need to take Demat Account charges into consideration to calculate your break-even point.
The documents needed to open a Demat Account are:
- Filled and signed Account Opening Form and KYC form
- Proof of Identity
- Proof of Address
- Proof of Income (if you plan to trade in derivatives)
- Proof of Bank Account
- PAN Card
You can get a list of documents accepted under the Proof of Identity, Address, Income, and Bank Account from the DP.
While a DP can waive off charges like account opening and account maintenance, usually, regulatory and statutory charges are passed on to the customer. Therefore, before opening an account, ensure that you go through the schedule of all Demat account charges and understand all applicable fees and charges carefully.