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 Demat account providers in India. Depository Participants (DPs) and stockbrokers are the ones offering Demat account services in India. A Demat accountprovider 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. Demat account holding charges are a series of expenses imposed on the customer. You can ask for the Demat account charges list from the broker before making a decision. Holdings of the chargesr depend on the types of Demat account. For instance, the holding charges for a BSDA (Basic Services Demat Account) might be less than that of a regular dematerialisation account. Demat account holding charges will also vary from one broker to another.
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:
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.
AMC can change from one Demat account provider to another. Demat account maintenance charges in India generally range between INR 300 and 1000.
Some brokers might not charge maintenance fees every year. Instead, they might ask for a one-time fee to maintain your Demat account.
Several brokers are available in India that do not charge annual maintenance charges for Demat accounts. However, they might cover costs through other charges.
The annual maintenance charge might be zero or a minimal amount for a Basic Services Demat Account.
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.
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 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.
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. 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.
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.
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.
How to Reduce Additional Unnecessary Demat 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.
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!