Demat Account has made a whole lot of changes in a trader’s life. The entire procedure of investing, trading, holding, and monitoring has been made convenient, cost-efficient, and faster. You, no longer, worry about your shares and other investment papers getting stolen or damaged. You no longer run helter-skelter to get the certificates of your stock tradings. Everything is taken care of by just passing instructions to your Depository Participant (DP) from the comforts of your home, even as you enjoy your life and go about with other important things.
However, it is impossible for a person to get something for nothing. In the case of Demat accounts too, you have to pay a small amount for making your trading possible with the click of a mouse. Charges may come in the form of opening charges, safety (or custodian) charges, Annual Maintenance Charges (AMC), transaction charges, and Demat & Remat charges. With more and more brokers and banks offering Demat facilities and with competition on the rise most of the DPs are making a lot of incentives in these payments these days. Many of the DPs have waived off Demat Account opening charges, as well as the Annual Maintenance Charges for the first year. Some DPs are offering some other benefits like better transaction charges.
Demat Account opening charges
Earlier, the banks used to charge anything between Rs 700 to 900 as opening charges. Despite the opening charges, the prospective investors were flocking towards them for opening Demat account because of the well-integrated banking network and investment services and easy stock market investment through the three-in-one account, that encompass trading as well as a bank account. However, nowadays the Demat account opening charges levied by the Depository Participant (DP) are either nominal or Nil. Brokerage firms and banks make it a point to offer it as an incentive for opening two-in-one accounts or three-in-one accounts. Such accounts make it extremely easy for beginners and casual investors to trade or simply invest in the stock market. All the transactions involving these accounts are seamless and integrated under one common platform. Broking firms, however, charges for the additional costs, if involved, such as stamp duty, GST or other statutory levies by SEBI.
Demat Account custodian fee (Safety charges)
Most of the Depository Participants (DPs) do pay the custodian fees as one-time charges to the depository, and a number of them do not levy any custodian fees from the investor for maintaining a demat account. DPs who charges custodian fees do it on a monthly basis. These charges depend on the number of securities that are held in a demat (otherwise known as a dematerialised) account. The charges normally are in the range between Rs 0.5 and Rs 1 for each ISIN (International Securities Identification Number). The DPs, i.e. your bank or the broker, do not charge any custodian /custodial fees for the ISIN for those companies that have already paid the one-time charges to the depository. Earlier most of the DPs did charge the clients for both credits and debits to their demat account. But nowadays utmost DPs only charge for the debits to your demat accounts.
Demat account annual maintenance charges
Like other charges, some of which are waived off, a Demat account holder will have to pay an annual maintenance charges (AMC) to the Depository Participant (DP) for the services rendered. Also known as folio maintenance charges, these charges are to be paid in advance and typically ranges from Rs 300 to 900 per annum. Some DPs may also charge quarterly fees, while others may charge a lifetime fee of over Rs. 2000 and above. However, with a number of DPs competing among each other to lure customers, many of them have waived off AMC charges for the first year and initiate billing from the second year only. The DPs under banks normally have differential rates of AMC. Those banks who offer three-in-one (demat, trading & savings) account generally charge lower as the mapping of the trading account is with the same bank's savings account. However, in a case when the mapping is with other bank’s savings account they charge higher.
Demat account transaction charges
The transactions that are happening in your Demat account is with the ultimate aim of making a profit out of it. Your DP, for its services in helping you earn money, charges a nominal fee as transaction charges. You will have to pay this per transaction fee each time financial securities comes in or goes out from your Demat account. However, most of the DPs charge it on a monthly basis. The transaction fees differ with DPs depending on the kind of transaction like for buying and selling. Usually, when you buy shares your Demat account gets credited. Similarly, when you sell shares your demat account goes debited. Some DPs only charge when the securities are debited while some others charge for buying and selling. Some DPs levy a charge either based on the number of transactions you have made or a flat rate for the entire month. Some tend to charge roughly Rs 1.5 for each share you trade.
Is Demat account a necessity for trading?
As per the Securities and Exchange Board of India (SEBI), the Regulator for the Securities market in India owned by Government of India, to trade in the stock market it is mandatory to hold a Demat account.
How does a Demat account work?
Demat account works just like your bank account. When shares are purchased money gets deducted and vice versa. The purpose of Demat account is to eliminate the risk of holding physical share certificates. When securities are purchased or sold it immediately gets reflected in the account, which holds shares and securities in an electronic form.
Should I necessarily dematerialise my physical certificates?
It is not compulsory for you to dematerialise your physical certificates. As per the Depository Act of 1996 you have an option to hold shares either in physical or dematerialised form.
How can I buy/ sell shares through a DP?
One has to give clear instruction to his/her DP for any transaction in the prescribed forms, which will be provided at the time of opening the Demat account. Your account will be given a credit/debit after settlement.
What role a DP has? Is it essential to have a DP?
By opening an account with a DP you can buy and sell shares in the electronic form through any broker. All you need to do is to give your DP account details. On buying shares in the depository mode you must similarly inform the broker about your depository account details so that the shares bought would be re-credited to your account with the DP.