A Demat account is a digital repository that allows the holding of multiple shares and securities in electronic form. The Securities and Exchange Board of India (SEBI) has made it mandatory for investors to open a Demat account to trade in the stock market. As of December 2022, the number of Demat accounts in India were 34% higher on a year-on-year basis than 2021. Similar to a bank account, a Demat account levies certain charges, such as account opening fees, annual maintenance charges, brokerage and transaction fees etc. This article elaborates on ways to reduce the charges related to your Demat account.
Demat Account Charges
To begin with, let us first understand in detail the various charges associated with a Demat account.
- Account opening Charges – Investors opening new Demat accounts must pay account opening charges. These charges are nominal and may vary depending on the brokerage firm. Some institutions do not charge account opening fees. Brokerage firms also offer the facility of 3-in-1 accounts comprising Demat, trading, and bank accounts, making it easy for first-time users.
- Annual Maintenance Charges (AMC) – Depository participants charge a yearly maintenance fee as a part of the Demat account charges. Account holders must pay these charges at the beginning of each year. Some depository participants may offer benefits such as zero Demat AMC.
- Brokerage Charges – The brokerage charges are levied each time an investor performs a transaction, i.e. when securities are added or removed from their accounts. Some brokerage firms charge users based on the number of transactions, while others may follow flat brokerage charges, such as charging users a flat monthly rate.
- Custodian Fees – Depository Participants (DP), including banks, trading platforms and stockbrokers, charge a nominal custodian fee as safety or custodian fees for security. The DP pays these charges directly to the depositories – CSDL and NSDL. The custodian fee depends upon the number of securities in their Demat Account. Some brokerage firms may waive these charges.
- Demat Charges – The Demat charges are levied on users who want to convert their physical share certificates into dematerialised forms. These charges are typically nominal but may vary across brokerage firms.
- Additional Demat Account Charges – Depository Participants may charge additional fees for online DP facility, such as delivery instruction slips, rematerialisation of shares, non-periodic statements, stamp duty, etc.
How to Reduce Demat Charges
Here are some tips for investors to reduce their Demat account charges.
- Low Rates – Investors must prefer brokerage firms that offer competitive rates to minimise their expenses. Before closing in on a DP, investors must thoroughly research and compare the rates being charged by other brokerage firms in the market. Many DPs provide competitive rates as per the needs of the investor.
- Basic Service Demat Account (BSDA) – Investors must assess the usage of their Demat account. A BSDA is a low-cost Demat account with a holding limit of 2 lakhs and nominal annual maintenance charges. Individuals who are not active investors can opt for BSDA to lower their trading costs.
- Opening and Maintenance Charges – Some brokerage firms offer the facility of free-of-cost account opening. They may also provide benefits such as waiving annual maintenance charges for a specific period. Investors must prefer such brokerage firms to lower the costs associated with their Demat accounts.
Conclusion
The advent of technology has made trading simpler and more accessible. Demat have changed how investors buy/sell/hold their securities providing them with an online platform to trade easily from anywhere. They help investors trade in securities conveniently and cost-effectively. However, the investors are charged a certain fee to maintain these accounts. Investors must stay updated with these charges to minimise such costs.