Opening a demat account to trade online might sound easy, but it is not if you are not aware of the fees and the demat account charges that are associated with it. While a number of brokers offer a free demat account to their customers, there can still be some demat charges that can be levied at a later stage. When traders and investors set out to enter the share markets to trade, one of the things they must take into account is the various charges that arise. These could comprise demat account opening charges and transaction fees. What you should be aware of about these fees is why they are charged and what they are. Investors and traders want to make the most of their trading and investment, with gains optimally realized. Fees may be high and may make some of your profits redundant if you don’t pay attention to them. Whenever you undertake transactions, especially while investing, fees must be kept at a minimum.
A demat account is required if a trader wants to hold his/her shares in the electronic format and this account is much similar to a bank account. Demat accounts are used to hold various financial instruments like bonds, non-convertible debentures, mutual funds, and exchange traded funds. There are a number of ways using which one can open a demat account and each of them has their own charges attached. While some of the firms offer a trading account along with the demat account, there are others who ask the customers to open a different trading account. Whatever the scenario may be, it is important to know all about the demat account charges.
To open a demat account, one needs to contact a depository participant (DP) and NSDL and CDSL have authorized a number of depository participants to open a demat account. The DPs can be online platforms, banks, any authorized stock brokers or even discounted brokers. To open an account from any DP, one has to fill the application form and submit the documents required.
Before any trader or an investor chooses to open a demat account, it is important to check and also compare the demat account opening charges involved. While some brokers might offer a free demat account, they can overburden you with other charges that are levied at a later stage.
There are majorly four demat account charges that can be levied on the demat accounts. They are the account opening charges, the annual maintenance charges for demat account, the custodian fees and the transaction fees. These demat charges can vary from DP to DP and they can charge the fees which they feel are appropriate. Additionally, just to attract new traders and investors, some financial and investment portals or brokerages may entice you with promises of nil demat account charges. While they may not compel you to pay a fee for opening a demat account, you may have to, at a later date, pay charges with each new transaction you make with a broker (while trading and buying and selling a stock). Furthermore, when you set up a demat account, you are likely to pay an annual fee for maintaining the account. This can be high with some brokers so understand what you are paying and the reasons for the charges levied.
While DPs charge a nominal fee as the account opening charge, there are others who do not charge any. A number of firms and banks do not charge any account opening fee and those who charge it also levy these charges when a customer reopens the demat account. The Stock Holding Corporation offers the customers a lifetime fee for account opening and this allows the customer to keep their demat account for a longer period. This fee is also refundable.
The annual maintenance charges are also known as the folio maintenance charges and these are to be paid in advance. This fee can range between Rs. 300 to Rs. 500 per annum and again varies from one DP to another. With huge competition, a number of brokerage firms also offer their customers with zero maintenance charges for the first year. They are billed from the 2nd year onwards.
The custodian fees are charged monthly and these charges depend on the number of securities that are held in a demat account. These charges can be anything in the range of Rs. 0.5 to Rs. 1 for each ISIN.
The depository participants do not charge any custodian fees for the ISIN for those companies that have already paid the one-time charges to the depository. As most of the companies do pay the one-time charges to the depository, a number of brokers do not levy any custodian fees on the demat accounts.
The transaction fee is charged on a monthly basis and is charged for the crediting and the debiting of the securities from and to the demat account. While there are some DPs who can charge a flat fee for each transaction, there are others who charge a % based on the value of that transaction.
The transaction fees can also differ depending on the kind of transaction like for buying and selling. Some DPs only charge when the securities are debited whereas others charge for buying and selling. Other than the above-mentioned demat charges, there can also be other additional demat transaction charges like the credit charges, the rejected for the failed instruction charges, mailing charges in the case of non-periodic statements, service tax, the Swachh Bharat and the Krishi Kalyan Cess and so on.
In conclusion, it can be said that before you open a demat account with a DP, learn all about their demat charges and fees. Compare and then sign up with them for the demat account. These days, Demat accounts can easily be opened online with a few simple clicks and brokerages are drawing customers with heavy discounts on charges. As many new investors join the foray of trading, demat accounts and their fees are likely to get lower to encourage investment in the stock market.