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

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.

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.

How to Reduce Demat Charges?

The previous section sheds light on the various Demat charges associated with opening your Demat account and trading through it. These charges are quite nominal and if you are an active trader, they serve as a small fee in return for the accessibility of trading electronically.

However, if you are interested in finding ways to reduce any or all of these Demat account charges, here are a few key pointers:

• One way of reducing your Demat charges, particularly if you are not an active trader, is to open a Basic Services Demat Account. They have been defined by SEBI as low-cost Demat accounts for investors who cannot invest regularly. As mentioned above, in some cases, the annual maintenance charges can be waived. However, these Demat accounts come with a holding limit of Rs. 2,00,000 which might not be ideal for investors looking for bigger opportunities.

• Another way of reducing your Demat account charges is to sign up with a brokerage firm that offers discount brokerage plans. These plans generally charge a flat fee for brokerage services irrespective of the number of transactions. These discounted Demat charges help heavy traders save a fortune on their regular trades.

Transaction Fees for Demat Accounts

There are charges associated with transactions made in a Demat account. These charges are levied whenever securities are credited or debited from the account. These transaction fees can vary depending upon the Depository Participant and also the selected brokerage plan by the investor. In some cases, it may be levied on every individual transaction while some DP charges a flat transaction fee for the month.

Miscellaneous Charges

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

How to Reduce Unnecessary Demat Charges

As you may have realised, there are many charges associated with opening and using a Demat account. While they are a small fee compared to the advantages of trading with a Demat account, there are ways in which some of these unnecessary charges of the Demat account can be reduced or even waived off.

One of the primary ways is to assess the usage of your account. If you are not an active trader and are using your Demat account to store securities rather than transacting frequently, a Basic Services Demat Account will serve your purpose. The Annual Maintenance Charges of such accounts are waived off in some cases. This makes it an ideal choice for passive traders.

There are also some DPs that offer free-of-cost Demat account opening. They may also waive off AMC for a specified time. For example, IIFL has zero Demat account opening charges and has no Account Maintenance Charges for the first year.

You also have the option of picking a discount brokerage plan. These plans usually come with a flat transaction fee instead of charging every transaction. Many brokerage firms offer this plan for traders who make multiple transactions. However, when you opt for a discount brokerage plan, research analysis and other services may not be available for you.

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.