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Here is How You can Avoid Paying DP Charges

While engaging in any banking and financial transactions, there are always charges and fees attached to transactions you conduct. For instance, when you opt for cash withdrawals at ATMs through your credit card, you have to pay a processing fee. Similarly, when you hold your assets in a Demat account, your DP or depository participant may charge you certain finance charges on specific transactions you execute. To know more about DP charges and how to avoid them, you should have a rough idea about the nature of a depository participant.

What Does a DP Do? About a DP

A depository participant is similar to a bank that keeps your money safe for you. A depository participant or DP, holds the securities you purchase and any other assets. A depository participant could be your bank or your brokerage. When a bank has a dedicated demat department, it has the identity of a DP. When you open a demat account in a bank or brokerage, you may discover that your DP has a unique ID. This means that whatever entity is a DP has the authority to open a demat account on an investor’s behalf. A popular DP is Motilal Oswal, a reputed brokerage in India with decades of experience in the field of investment and the financial markets. Since you cannot buy assets directly from depositories such as the National Securities Depository Limited (NSDL), and the CDSL or the Central Depository Services India Limited, the DP serves as a channel to buy assets, hold them and transact with them when you wish to. However, particular DP charges must be incurred by you and you may want to learn how to avoid DP charges as these may be costly for you if you trade a lot. It is always advisable to select a DP with low charges, as high costs levied shouldn’t make your investment returns redundant.

What is a DP Charge?

What are DP charges and how do they get levied? Apart from charges you have to pay to open a Demat account, plus maintaining it, DPs levy other charges on you too. If you have a bank account, most banks will offer you a free demat account (no opening charges levied). Firms like Motilal Oswal offer this too. However, for any transaction executed by investors in their trading account, some DPs, for instance, charge a flat fee for the month. Others levy charges that are based on a percentage of the transaction undertaken, as when you sell stocks.

Can You Avoid DP Charges?

The answer to this question is yes, you can avoid them. Here are ways to avoid DP charges:

Intraday Trading - Intraday trading involves the process of purchasing and selling shares within the same trading day. The whole transaction is conducted before the market shuts. DP charges for intraday trading do not have to be incurred by you as shares do not get deposited into your Demat account. The purpose of this kind of trading is to make short gains and not for investment per se.
BTST Trading - Taking advantage of short-term market volatility, BTST trades involve the sale of stocks before they are deposited into a Demat account. Maybe these shares had been bought previously and have not been delivered to a Demat account yet.
Futures and Options - When you trade in the derivatives market, Futures and Options, there is no DP charge involved.

If you are an avid trader or an investor in the stock market, you have to know about various charges that are levied on you, either as a result of holding stock or transacting in the equity markets. Hence, stock DP charges come into play.

Why do DPs Levy Charges?

DPs provide demat account services and share and stock transaction services to individuals like investors. If you are an investor, you may be wondering why DPs levy charges and for what purposes. To be a DP, entities must pay a fee for membership as well as an advanced transaction charge to both depositories, the NSDL and the CDSL. The bank or brokerage passes these fees on to the client as demat account opening fees (although you get the chance to open free online demat accounts today), and AMC, or annual maintenance charges. Therefore, whatever charges banks and brokerages levy are compensation for fees that they are charged to maintain their status as DPs.

Roles of the NSDL and CDSL

While knowing about DPs and their charges, as an investor, you should have some knowledge about the two main depositories and the roles they play in financial markets. The NSDL is promoted by the National Stock Exchange and the Unit Trust of India or UTI. In terms of the NSDL, DPs, clearing houses, share transfer agents, and any other relevant entities perform a variety of functions on behalf of the NSDL. In terms of DPs, they are known as partners of the NSDL. What DPs charge as transactions made in the stock market are essentially those stipulated by the NSDL. These charges are levied on transactions on a daily basis of transacting in the markets.

It is the same case with the CDSL. This is promoted by the Bombay Stock Exchange. Other public sector banking institutions also promote the CDSL. As with the NSDL, the DP’s main purpose is to serve as intermediaries between the CDSL and the investors who hold demat accounts. The CDSL has a crucial purpose in relation to your demat account held by your DP. It records and manages all the balances contained in any account via the DP. Therefore, the investor obtains account statements from DPs with regularity. Investors also get information about securities held along with transactions. Records are maintained meticulously and accurately. This, obviously, has a fee tied to it.

Final Remarks

A guaranteed way to reduce Demat account charges is by starting an account with a financial firm that gives you a nominal brokerage fee. Motilal Oswal is one such firm that gives you competitive rates on brokerage, only charging nominal fees on stock trading.

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