How should you select your demat service provider - Motilal Oswal
How should you select your demat service provider - Motilal Oswal

How should you select your demat service provider?

Is it really important how you select your demat account? How to choose a good broker for demat service who is the best demat service provider in India? After all, whoever, the DP is your shares are still going to reside with the NSDL or the CDSL. The fact is that your choice of demat does matter in terms of costs; in terms of service standards and it terms of technical add on facilities that the DP provides to you. Remember, we are living in an era where technology has taken over almost each and every aspect of our lives and the demat account is no exception. So you not only need an efficient demat account but also a demat account that is technically smart. Here are key factors that will determine the choice of your demat service providers. Run yourself through this 5-point checklist to compare demat account services.
 
Is your broker and your DP the same?

 
There is no compulsion but ideally have your broker and the DP at the same place. There are instances where your broker may not have a DP license or may be awaiting their DP license. In such cases, you need to have your broking account and demat account at different places. The advantage of having your broking and DP account at the same place is that coordination becomes a lot simpler. When you sell shares you are required to ensure that you Debit Instruction Slip (DIS) reach your broker on the same day or latest by next day morning. When your broker and DP are the same, this problem gets largely addressed.
 
What are the costs that are loaded on my DP account?
 
The costs may appear to be small in isolation but can add up substantially over a period of time. Also, remember that your DP charges have to go into your delivery trades costing and you need to calculate your breakeven point after considering the DP charges too. Ensure that your depository participant is able to offer you easy account opening as well as a low annual maintenance cost (AMC). There are a plethora of costs involved in demat account. The account opening cost may be waived but there is an annual maintenance cost, there is the cost for every debit to your demat account and there are other charges if your DRF gets rejected or if your DIS gets rejected. Converting physical shares into demat dematerialization) and even Rematerialization has an additional cost. You have to factor in all these costs while evaluating the demat account. Always opt for the demat account that is not only low cost but also gives you value for money.
 
Are you getting a seamless linkage between broking, banking and demat?
 
This is an important question you need to address. Ideally, you would prefer if the entire process of executing transactions in your trading account; debit to your bank account, credit to your demat account, debit to your demat account and credit to your bank account to be seamless. However, this 3-in-1 account is only possible in case of brokers and DPs that also have a banking license like HDFC Bank, ICICI Bank, Kotak Bank, SBI, Axis Bank etc. Others have to be satisfied with 2-in-1 accounts. Your focus should be on getting 2-in-1 with seamless and low cost banking. For example, if your broker is going to charge you payment gateway fee and cash transfer fees then the overall cost of demat and broking becomes too high. Also check out for the hidden costs here, which may only be visible to you when you read the fine print.
 
Online demat execution is simpler and smarter too..
 
You surely do not want a situation where you need to sign and submit a Debit Instruction Slip (DIS) physically each time you make a sell transaction. That is just too cumbersome. You need to ensure that you have the slips ready, the booklet is received on time, your trades are backed by DIS each time, you deliver the DIS on time, you ensure safekeeping of the DIS booklet etc. How do you do all this in an easier and more secure manner? These problems can be obviated through online demat facility which does away with physical intervention and makes the entire process straight and seamless. Here your debits to demat should be automatically authorized by you on the online platform itself.
 
Check out the hygiene issues pertaining to the DP
 
This item is slightly subjective but important nevertheless. Just because a particular DP is being investigated does not make them guilty. It is only when the guilt is proved that they can be called guilty. Remember, not all investigations end up proving you guilty. However, as a customer if you have a choice you can as well be cautious. Avoid opening an account with the DP if there are too many negative vibes on social media, chat forums as well as constantly being pulled by the central DPs and the regulator. That is a sign of laxity in process which is the last thing you expect from your DP. You need to be sensitive with such DPs who are regularly on the wrong side of regulation.
 
Most of the DPs also provide your analytics regarding your stock flows to give you a more 360 degree view of your holdings. Also, your demat account itself is integrated with your demat account and the research in such a way that you can click and read research and analytics from your demat account itself. Demat account offers the facility to hold a broad spectrum of financial investments in a single account including equities, bonds, ETFs and even mutual funds. This enables you to control all your investments with a single login. But at the end of the day, it is the troika of costs, technology and service standards that will separate the wheat from the chaff when it comes to DPs.
 

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