Everything to Know About Demat Account Charges and Ways to Reduce Them
How to Setup a Demat Account?
Types Of Demat Account Charges:
Different types of charges are levied in a Demat account. For a new investor, it is sometimes confusing to interpret different charges and their breakup. Without a clear understanding, choosing the highest Demat account charges and lowest Demat account charges is a challenge. You may come across attractive offers from DPs that promise minimal or zero Demat account charges, but there are other charges you need to bear. Understanding every expense you bear in your investing and trading journey is important.
Let us understand different types of Demat account charges like:
Demat Account Opening Charges
For opening a Demat account, there is an account opening charge levied by the bank or DP. Some entities offer a zero account opening charge, and some charge a nominal fee to set up the Demat account. The Demat account opening charge ranges from nil to Rs 1200 with various DPS. However, it is essential not to get carried away with zero account opening charge offers and to look out for other expenses before deciding on the DP.
AMC for Demat Account:
Once your Demat account is active, you incur AMC or Annual Maintenance Charge for the Demat account. This charge covers the administrative expenses like backend operational tasks for the services delivered to your account. This fee ensures your account is maintained, remains active at all times, and has good service delivery.
AMC is an annual charge, but some DPs bill AMC on a quarterly basis. The AMC ranges up to Rs 1000 per year. Some DPs waive off the first year AMC as a freebie offer, but AMC charges accrue from the second year onwards. Banks that offer 3-in-1 trading accounts charge a lower AMC since the linked bank account is maintained with them. Do take note of the AMC when you select a DP for Demat and trading account.
Trading Account Opening Charges:
A standalone Demat account is not sufficient to buy, sell, and trade in securities. You need to open a trading account to transact in the stock markets. There is a one-time trading account opening charge ranging from Rs 1500 charged by stockbrokers and online brokerages. This charge may be reduced or waived off depending on your chosen entity. Some brokerages reduce trading account charges based on the initial investment that you start with.
SEBI Transaction Charges:
SEBI levies a transaction fee every time you place a trade in the market. This fee is usually charged as a percentage of trade value in rupees, while some DPs may charge a flat fee per transaction. This charge is mentioned in the terms and conditions in the Demat account opening documents. Every time a security moves in or out of your trading account, you bear the transaction charge — some DPs charge only for the credit of securities.
Every brokerage has a different charge structure and may vary according to the volume or value of trades in your account and the type of security traded. Do read the fine print to get a clear idea of the expense you will incur, as this is an ongoing expense and will directly impact your overall trading costs.
Trading Platform Usage Charges:
The Digital revolution has transformed the way we trade. Many platforms offer value-added services like sophisticated Algo trading software, apps, and algorithm-based tools for customers for better trade and portfolio management. Some brokers offer third-party tools on licensing basis, and some have developed in-house software. Customers can access these solutions at a fixed monthly fee, known as platform usage charges.
Many investors still hold securities in physical form. These securities need to be dematerialized and held in electronic form. A dematerialization fee is levied for converting paper into electronic holdings. At times, you may want to hold specific securities in physical form. E.g., bonds with lock-in a period where you may not want to incur Demat, AMC, and other charges. You can convert or remat these securities after paying a remat charge billed per share.