'Free' demat account opening in India !

How do you open a demat account and what are the charges entailed therein? Let’s consider this in detail.

Dec 09, 2018 04:12 IST India Infoline News Service

Account Opening form
It is not uncommon to see brokers advertising free demat accounts for investors. Quite often, investors fail to fathom what this free demat account is all about. They tend to assume that such an account is a zero-cost demat account. That is not true!

Generally, a free demat account implies that such an account has no opening charges. Since a demat account opening is free, most depository participants (DPs) call it a free demat account and offer waivers on the first year’s Annual Maintenance Charges (AMC).

Let us consider two critical aspects here, that is, opening of a demat account and the charges entailed therein.
 
How to open a demat account in India
Opening a demat account is a fairly simple process and is normally opened by the broker along with the trading account. If you already have a demat account, then you can map your trading account to the existing demat account. However, for your own safety and convenience, it is advisable to keep both the trading and demat accounts with the same broker to avoid delays in submission of debit instruction slips (DIS). The demat account opening entails the following four step process.
  • The first step is filling up the DP application form and submitting the same to a depository participant (normally the same as a broker). You can either do it physically or even online using the e-KYC method of online application.
  • Now comes the documentation part. You need to provide the DP copies of your address proof, identity proof, cancelled cheque copy, coloured photograph, and PAN card. In case of an online demat application, these details are automatically picked up from your Aadhar database.
  • The third step is to familiarize yourself with the rights and duties of the DP and the investor before you sign on the dotted line and execute the agreement. That completes the task from your end.
  • Once the application process is completed, the DP will verify the details and then process the application. Once the application is processed in 4-5 days, the DP will allot a unique beneficiary owner ID (BO-ID), which combined with your DP code will be your unique id for all applications in future. In case of an online e-KYC application, there is an additional requirement of doing an in-person verification (IPV) before the demat account gets activated.
 
Demat charges and all about the free demat account
 
In the past, a free demat account referred to waiving of account opening charges. Now opening an account has by default become free. Hence, now DPs use free demat to denote waiver of the first year’s AMC. Note that only the first year’s AMC is waived, and from the second year onwards, AMC charges will be billed to your demat account. Here is what you need to know about opening a free demat account.
  • Account opening charges and account closure charges are now waived. Hence nowadays, a free demat account generally means waiving of the first year’s annual maintenance charges (AMC).
  • Annual maintenance charges are billed in the range of Rs500 to Rs800 per year if the portfolio value is above Rs2 lakhs. If the portfolio value is below Rs2 lakhs, then the individual has the option to opt for a Basic Services Demat Account (BSDA). In case of BSDA, there is no AMC if the demat value is up to Rs50,000, and for demat value above Rs50,000 but up to Rs2 lakhs, the AMC is limited to Rs100 per year.
  • There are no charges debited by the DP for buy-side transactions. However, all sell-side transactions will attract a charge of a certain percentage of the transaction’s value. Normally, the charges are subject to a minimum charge of Rs30 per sale.
  • There are no charges for off market trades, but in case TIFD gets rejected then most DPs will bill you for a nominal charge of Rs25-30 per rejection.
  • Finally, when you put a demat request for dematerializing your physical certificates into demat form, the DP charges you at two levels. There is a nominal fee of around Rs50 per demat request form (DRF) and then there is also an additional charge per certificate.
 
Apart from these charges, there are also charges that are levied in case of re-issue of DIS booklet, request for physical statements, pledge creation, pledge closure, etc. What needs to be noted is that these demat-related charges are not shown in your contract note but are debited to your ledger account. So, a free demat account is not entirely free in the strict sense of the term.

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