Things You Must Know About Demat Charges and The Way To Reduce Them

Last Updated: 13 Jan 2025

While Demat accounts make investments, in general, and trading, in particular, more convenient than ever, they come with their fair share of charges. These charges are a small price to pay for the convenience of trading electronically. However, it is still financially prudent to be aware of a few aspects of these Demat account charges.

What are the Different Types of Demat Account Charges?

When opening and maintaining a Demat account, it’s important to understand the various charges that may apply. These charges can vary depending on the service provider and the type of account you choose. We will explore the different types of Demat account charges and how they impact your investment journey.

Demat Account Opening Charges

The process of opening a Demat account requires the presence of a Depository Participant, also known as a DP. These are typically brokerage firms or banks that offer the option of opening a Demat account with them. In most cases, your DP will likely require Demat account opening charges that are a nominal amount. In other cases, the DP might offer the option of using a Demat account free for a year and charging you the next year.

Either way, it is best to inform yourself of the opening charges for a Demat account of your choice. Before choosing a DP, ensure that the concession on opening charges does not mean a compromise on the quality of services offered. IIFL offers Demat accounts with no opening charges and also waives maintenance charges for a year.

Demat Account Maintenance Charges

Apart from charges for opening a Demat account, you might also be required to pay an annual maintenance charge for your Demat account. These charges are billed annually and are also nominal, ranging anywhere from Rs. 300 to 800, depending on the DP and the value of your transactions.

There are cases in which the Demat account charges for annual maintenance can be waived off. The SEBI defines a type of Demat account known as Basic Services Demat Account (BSDA) which is recommended for small investors. In the case of BSDA, annual maintenance Demat charges are waived off if the balance is less than Rs. 50,000.

Demat Account Safety Charges/ Custodian Fees

Before trading became electronic, traders had to store physical, paper-based certificates for their shares and other securities. The responsibility for the safety of these certificates was placed on the trader. However, with the advent of Demat accounts, the safety of a trader’s securities rests with the DP. Therefore, traders are charged a minimal custodian fee, depending upon the number of securities held in the Demat account.

Demat Account Transaction Fees

Finally, among the Demat charges are the charges levied for the debiting and crediting of securities in a Demat account. These are known as the transaction fees and they differ from DP to DP, as well as on the choice of the trader’s brokerage plan. Some DPs levy transaction fees based on the number of transactions while others charge a flat transaction fee for the entire month.

Miscellaneous Charges

You will also need to pay some miscellaneous charges for the Demat account. These can include charges to dematerialise and rematerialise shares. You may also need to pay courier charges, stamp duty, and non-periodic statements.

How to Reduce Unnecessary Demat Charges

As you may have realised, there are several charges associated with opening and using a Demat account. While these fees are generally small compared to the advantages of trading with a Demat account, there are ways to reduce or even waive some of these unnecessary charges.

1. Choose the Right Type of Account

One of the primary ways to reduce costs is by assessing your account usage. If you’re not an active trader and mainly use your Demat account for storing securities rather than frequent transactions, a Basic Services Demat Account (BSDA) might be the best option. In many cases, the Annual Maintenance Charges (AMC) for such accounts are waived, making them ideal for passive traders.

2. Look for Free Demat Account Opening Offers

Some Depository Participants (DPs) offer free demat account openings and may even waive the AMC for a specific period. For instance, IIFL Capital Securities Limited charges zero fees for demat account opening and waives the AMC for the first year, which can significantly reduce costs in the initial stages of your investment journey.

3. Opt for Discount Brokerage Plans

Another cost-effective option is to choose a discount brokerage plan. These plans usually come with a flat transaction fee instead of charging per transaction. Many brokerage firms offer this plan for traders who engage in multiple transactions. However, it’s worth noting that when you opt for a discount brokerage plan, services like research analysis and other premium offerings may not be available to you.

Full Service vs Discount Broker

Before you open a Demat account, you can choose between a full-service broker and a discount broker. Understand their differences below:

Feature	Full-Service Broker	Discount Broker
Services Provided	Provides a wide range of services, including research, advice, portfolio management, and financial planning.	Primarily offers basic services like buying and selling stocks with minimal additional services.
Cost Structure	Typically charges higher fees due to the additional services. Charges include a percentage-based commission on trades, account maintenance fees, and other service fees.	Charges lower fees with a flat-rate commission on trades. No added service charges, making it cost-effective for active traders.
Research and Advisory	Offers in-depth research reports, market analysis, and personal advisory services.	Provides minimal or no research services. Traders must rely on their own knowledge or external sources.
Customer Support	Offers personalised customer support with dedicated relationship managers.	Provides basic customer support with standard online tools and resources.
Platform and Tools	Offers sophisticated trading platforms with advanced tools for research, technical analysis, and portfolio tracking.	Provides simplified trading platforms with basic tools for placing orders.
Target Audience	Suitable for beginners and investors who seek expert guidance and a hands-off approach to managing their portfolio.	Ideal for experienced traders and active investors looking to cut costs and trade frequently.
Account Opening Fees	Generally higher due to the additional services provided.	Generally lower or sometimes free due to the streamlined service model.
Minimum Investment	It may require a higher minimum deposit to open an account, depending on the services offered.	Often, it requires a lower minimum deposit, focusing on cost efficiency.

The choice between full-service and discount brokers depends on your needs and investment style. Full-service brokers are more suited for those seeking comprehensive support, while discount brokers are ideal for those looking to save on trading costs and prefer a hands-on approach.

Conclusion

Due to the advent of technology, trading today has become far easier and more accessible than ever before. In particular, Demat accounts have drastically changed the way traders buy, sell and hold their securities and made trading a more open playing ground. In return for these services, providers of Demat accounts charge various fees related to various aspects of keeping a Demat account secure and convenient. As a potential trader, it is important to stay apprised of these Demat charges as well as make note of how they could be minimised.

Frequently Asked Questions

Are there any hidden charges in a Demat account?

Most charges of opening and operating a Demat account have been explained above. These include, account opening charges, annual maintenance fees, custodian fees, transaction fee and other miscellaneous charges.

What is the minimum balance for a Demat account?

You can open a Demat Account without actually possessing any shares. Just like savings bank accounts, you are allowed to maintain a zero balance in your Demat Account.

What happens if I don't pay AMC for a Demat account?

If AMC is not paid after being sent multiple reminders, your account may be locked and you will not be able to access it. Therefore, you should pay AMC timely and if you do not wish to use your account anymore, ask your DP for closure.

Is there any zero brokerage?

Yes, some brokers offer zero brokerage on specific plans or for particular types of trades, such as equity delivery. However, zero brokerage plans may come with other costs, like higher account maintenance fees or limited services, so it’s important to understand the overall pricing structure.

How much does it cost to open a Demat account?

The cost of opening a Demat account varies depending on the depository participant (DP) and the type of account. While some brokers may offer free account opening, others may charge a nominal fee. Additional charges, such as annual maintenance fees, might apply after the account is set up.