What Do DP Charges Mean?
Stocks have always been attractive and a large segment of investors, mostly beginners, are keen on starting to play with shares. When taking a plunge into the online market for shares, few terms pop up very frequently. One of these terms is DP charges. Some new investors consider it one of those miscellaneous charges that they never really put much thought into. However, DP charges are not something so frivolous. DP stands for depository participant and the term refers to all depository charges. Take a look into understanding the what and why of DP charges.
Defining and Understanding DP Charge
Now that you know what DP stands for, you also need to know what depository actually means. In the simplest version, a depository signifies a “place” where all shares are deposited. Whatever the platform for purchase of stocks might be, there is a single digital space that stores all stock investments for an investor. The demat account you opened is secure in a depository. depository charges are levied by the depository and the depository participant.
The primary depositories operable in India are-
- Central Depository Services Limited
- National Securities Depository Limited
Any brokerage can operate via these main depositories. Both these entities offer operations via demat account. Such accounts are mainly operable online. These accounts are common and most banks offer combined demat accounts with your current account itself. The demat account lets you hold all shares in an electronic format and thus, you are spared the need to hold a certificate signifying the share you hold in your name. Therefore, trading in company stocks has gotten easier with demat accounts.
Who levies DP Charges?
For instance, you open a demat account to trade in shares. Stocks are part of the CDSL or the NSDL--depending on if they belong to Bombay Stock Exchange or Nifty respectively. Therefore, you pay a charge to either of these depositories.
Now, your demat account is directly managed via a broker or mediating bank. This entity is known as depository participant. Some DP charges are levied on behalf of these mediating institutions.
Is Demat Account linked to DP charges?
Demat is the colloquial term for dematerialized account. In fact, in popular parlance, it is simply demat. Some might not even have known it had a full form until now! Demat accounts are very much linked to DP charges because these accounts enable you to trade in stocks—without which, you just could not! Such an account enables you to invest directly in equity. Therefore, DP charges come to apply only when you have transactions via a demat account!
Also Read: What is Collateral Amount in Demat Account?
- A vital titbit to remember here is that you might be investing or trading via any share broker online. You simply need a demat account. However, the depositories are ONLY operational under the primary depositors mentioned above.
- The advantage of this scenario becomes evident, when, in an unfortunate turn of events, a brokerage shuts operations. Even in such a case, account holders or investors can access their stock market instruments without worry.
- This is a huge assurance for investors who feel a kind of cushion even in the event of brokerage disintegration. For offering such huge relief, the main depositories levy charges on every investor through a demat account. This is what “DP charges” actually mean.
Breakup of Charges
While you maintain an online demat account, you might come across another frequently levied charge called brokerage charge. This sometimes is considered synonymous with DP charges. The reality is far from it. The brokerage charge is payable directly to the broker—not the depository provider necessarily. Brokers need this service-oriented charge to offer the brokerage! In fact, they can charge relevantly because they in turn, make payments to the depositories. Again, depositaries also can charge an add-on brokerage fee—that technically becomes a part of DP charges, in such cases.
The Charges for Transaction
It is compulsory that you shell out DP charges whenever you make a holdings sale via a demat account. The Central depository has a daily, per company charge rate of INR 5.50 while the National depository charges INR 4.50 for the same structure.
- Therefore, if you have a demat account with the Central depository, and close a sale of five shares—you will have to pay INR 5.50 per share sold for that day. If you hold the demat account with the other depository, the structure of charges remains the same but the rate declines by INR 1 for each share unit. Therefore, the base charge is fixed.
- The amount doesn't go up as per the number of shares on sale. When conducting a sale on your shares, remember that the brokerage might also levy additional charges separate from these DP charges.
- Before you begin to invest and stay around the stock markets, understand the charges, their structures and rates. This will prepare you for understanding the accounting at play during share trading.
Remember that even if you sell a huge quantity of shares, the DP charges from the depository end will still apply. This is akin to a flat fee for the transaction that multiplies per scrip for sale. However, the brokerage can waive off their part of DP charges. There are variable DP charges that the depositories charge on demat accounts at present. These include the initial fee for opening an account, maintenance charges and transaction charges . The first fee is an administrative charge and is one-time. However, lately depository providers offer to waive this charge off as a promotional measure.
Also Read: Understanding the Different Demat Account Charges
These charges are often termed folio charges and could be charged on monthly or one-time annual basis.
Remat is a process wherein shares you hold in demat form are converted back into a physical form. All this needs is a share certificate re-issue. A depository charges flat charge for share conversion from the electronic form into physical form. Depending on the depository, you hold an account with; you either pay a single charge for every request of conversion. You might have to shell out this conversion fee and a charge for the certificate.
Also Read: How to Convert Physical Shares to Demat?
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Frequently Asked Questions
Yes, there is a requirement of minimum net worth for any depository. SEBI stipulates the value to be INR 100 crore.
No, a depository holds ONLY securities via demat account while a bank holds funds and is enabled to conduct related banking functions.
The e-statements are accessible free of cost and during a single billing cycle, free e-statements are available at least twice.
However, if statements more than this number are requested, the account holder pays a charge not over INR 25 for every new statement.
No there are no penalties per se. However, the annual charges for the demat account is compulsory. However, in case of failure to pay the same, the depository has freedom to switch your account into dormant—and finally, non-active mode.
Online brokerages have freedom to minimize DP charges for exclusive or select customers depending on their internal schemes and policies. Every brokerage has its own internal charges and service related tie-ups. This enables each brokerage to charge differently. A brokerage has tons of other charges for their services and in turn they need to pay to the depositories as well.