Demat Account Charges & Fees
Brokers or depository participants offering Demat account services impose several charges on customers. These Demat account charges are mandatory and vary from one service provider to another. Since these charges can add to the total investment costs, it is essential to understand them in detail. New investors must understand different charges before applying for a new Demat account. Let us discuss the Demat account charges in detail.
What are Demat Account Holding Charges?
Before getting to the holding charges, let us discuss the meaning of Demat account in India. Depository Participants (DPs) and stockbrokers are the ones offering Demat account services in India. A Demat account provider will manage the records of their customers and keep track of their electronic securities. Customers trust the broker and expect their dematerialised securities to be safe. Not to forget, a broker or DP also offers an electronic platform for customers to access their Demat accounts. Since a Demat account provider is responsible for managing the Demat accounts of its customers and other services, it needs funds.
Demat account providers depend on holding charges to cover costs incurred in maintaining different accounts. You can ask for the Demat account fees the broker before making a decision. It depends on the types of demat account. Also, it varies from one broker to another.
Types of Demat Account Charges
When opening demat account, understanding the types of demat account charges is essential. These include account opening fees, annual maintenance charges (AMC), transaction fees, and other miscellaneous costs. Knowing these will help you manage your investments efficiently.
Demat Account Opening Charges
When you first open a demat account, you may incur a one-time account opening fee. This charge can vary significantly between different Depository Participants (DPs).
Some DPs may waive this fee as part of promotional offers to attract new clients. The fee covers the administrative costs of setting up your account and ensuring it is ready for transactions. This initial charge is required to get your account up and running and enable you to engage in trading and investment activities.
Demat Account Maintenance Charges
Demat account maintenance charge is a yearly fee imposed by brokers or DPs. Some brokers might even refer to it as AMC (Annual Maintenance Charge). Here are some key features of AMC for Demat account users:
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AMC is among the Demat account charges required for the maintenance and upkeep of your account. It is usually charged once a year by the Demat account provider.
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AMC can change from one Demat account provider to another. Demat account maintenance charges in India generally range between INR 300 and 1000.
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Some brokers might not charge maintenance fees every year. Instead, they might ask for a one-time fee to maintain your Demat account.
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Several brokers are available in India that do not charge annual maintenance charges for Demat accounts. However, they might cover costs through other charges.
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The annual maintenance charge might be zero or a minimal amount for a Basic Services Demat Account.
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Many brokers in India do not charge AMC for the first year. They attract more customers by waiving off the AMC for the first year.
Dematerialisation of Share Certificate
Dematerialisation is the process of converting physical share certificates into electronic form. The dematerialisation charges cover the cost of this conversion process. These fees are usually applied per certificate and can vary depending on the DP.
The process involves several steps, including verifying the physical certificates and converting them into electronic format. This step facilitates easy and secure trading in the stock market, as electronic shares are less susceptible to theft, loss, or damage than physical certificates.
Rematerialisation of Share Certificate
Conversely, rematerialisation involves converting electronic shares back into physical certificates. The rematerialisation charges are applied per certificate and typically include additional processing and printing costs. Investors might choose this option if they prefer holding physical certificates or need them for specific purposes, such as loan collateral.
The fee compensates the DP for the administrative work required to issue physical certificates, ensuring they meet all regulatory standards and are delivered securely to the investor.
Conversion of Mutual Fund Units
Converting mutual fund units can involve several specific charges, depending on the nature of the conversion. These charges ensure the smooth processing of your mutual fund transactions.
● Destatementisation Charges
Destatementisation converts mutual fund units held in statement form to electronic form in a dematerialised account. Destatementisation charges cover the administrative costs of this conversion. This process allows investors to hold all their securities in one account, simplifying management and tracking.
● Restatementisation Charges
Restatementisation, on the other hand, is the conversion of electronic mutual fund units back to statement form. The restatementisation charges are usually levied per transaction and can vary among different DPs. This process might be necessary for investors who wish to have a physical statement for record-keeping or other purposes.
● Redemption Charges
When you redeem your mutual fund units, you may incur redemption charges. These fees are applied to the transaction of selling your mutual fund units. The charges can depend on the type of mutual fund and the duration you hold the units. Redemption charges help cover the administrative costs of processing the sale and transferring the proceeds to the investor’s account.
Postal Charges
Postal charges are incurred when physical documents such as statements, transaction slips, or certificates need to be sent to you. These postal charges cover the cost of mailing and handling. Although many DPs offer electronic statements to reduce these costs, postal charges may apply in certain cases.
For example, if you require physical copies of your account statements for legal or personal reasons, the DP will charge a fee to cover the cost of printing and postage.
Demat Account Safety Charges/Custodian Fees
Demat account charges also include custodian fees in India. You might know that investors used to carry physical certificates before the inception of dematerialisation accounts in India. Every individual was responsible for the safety of their physical share certificates. Demat accounts have freed us from paper-based certificates, as we now hold the securities electronically. Physical securities are dematerialised and stored within Demat accounts.
Investors need not worry about the safety of dematerialised or electronic securities. The Demat account provider is responsible for the safe storage of dematerialised securities in your Zero Brokerage Demat account. Demat account providers charge custodian fees to ensure the safe storage of dematerialised securities. Custodian charges are usually nominal in India. Custodian charges will depend on the total value of securities in your Demat account.
Transaction Fees For Demat Accounts
Your Demat account will be linked with a trading account. You will place purchase or sale orders through the trading account. When you place a purchase order, dematerialised securities are credited to the Demat account when the order is executed. On the other hand, securities are debited from the Demat account when a sale order is executed via the trading account. The frequent credit and debit can be referred to as Demat account transactions.
Stockbrokers and DPs charge customers for Demat account transactions. The transaction fee can be a percentage of the total value of debited/credited securities. Some brokers impose a minimal flat fee for Demat account transactions. You can even find brokers that impose transaction fees only on selling financial securities. Don’t forget to check the transaction charges before applying for a Demat account with the broker.
Miscellaneous Charges
Besides the aforementioned Demat account charges, there are a few others. For instance, you might have to pay a one-time fee to open a new Demat account. However, not all brokers demand Demat account opening charges. Many brokers offer Demat cum trading (2-in-1) accounts for free. Once you have a Demat account, securities are automatically dematerialised. However, you might have physical securities (paper certificates) from earlier investments. To convert such securities into electronic form, you must pay dematerialisation charges.
There might be cases where investors need to convert electronic securities into physical paper certificates. You can submit a rematerialisation request with the broker to convert securities into physical form. You must also pay rematerialisation charges to the broker or DP. Investors also incur courier and stamp duty charges. You might also pay for paper-based Demat account statements. Enquire your broker about all miscellaneous Demat account charges before making a decision.
Recommended Reads – How to Choose Best Demat Account ?
How To Reduce Demat Charges?
Demat account charges will leave an impact on your investment returns. Since these charges are considered a part of investment costs, you might decrease them from your returns. Luckily, there are a few ways to reduce Demat account charges, like:
● Opt for a BSDA
SEBI has offered the Basic Services Demat Account for small-scale investors. The AMC is waived off for most BSDAs. However, you cannot hold securities worth more than INR 2 lakhs in a Basic Services Demat Account.
● Close Redundant Demat Accounts
You might have multiple Demat accounts with the same or different brokers. Consider closing a few Demat accounts which are not in use.
● Choose a Better Broker or DP
Don’t choose the first broker or DP you come across to open a demat account online. Compare the Demat account charges of different providers and choose an affordable option. Usually, discount brokers in India offer Demat accounts with minimal charges.
● Check Your Holdings
Investors must review their holdings at frequent intervals. Sell the financial securities that are no longer required in your portfolio. You can decrease custodian charges by doing so.
● Choose a Beneficiary
It is essential to select a beneficiary while opening a new demat account. It will ensure a smooth transfer of securities in case of demise. The beneficiary will not have to spend money on legal issues.
● Save Other Charges
You can reduce Demat account charges by paying a little attention. For instance, there is no need for paper-based account statements in today’s era. You can opt for electronic account statements and save on courier charges. Stockbrokers and DPs offer electronic account statements for free or at a lower cost.
Conclusion
Stockbrokers and depository participants charge customers for Demat account services. Demat account charges will increase your overall investment cost. Choose a broker or DP with minimal charges and no hidden expenses. Retail investors who want to make small trades can choose Basic Services Demat Accounts. BSDAs come with low or zero maintenance charges in India. Choose a broker with minimal Demat account holding charges and start your investment journey now!
