Trading online is easy and exciting, but if you are unaware of the Demat account charges that are associating with opening a Demat account to trade online, you may be in for some unpleasant surprises. Some brokers advertise a free Demat account, but there may be a hidden Demat account price levied during the course of trading. Let’s look at all the charges associated with opening a Demat Account.
Why do you need a Demat account?
If you are looking to hold your stocks or company shares in an electronic format, it is essential to open a Demat account. A Demat account works similar to a bank account. In addition to shares, Demat accounts also hold financial assets such as mutual funds, exchange-traded funds, nonconvertible debentures and government bonds.
You can open a Demat account with any of the reputed brokerage firms such as Kotak Securities, banks or financial institutions, but you must know that each firm applies some form of charges to the account.
Procedure to open a Demat account
A Demat account can be opened by contacting an authorised Depository Participant (DP), associated with either the NSDL or the CDSL — the two primary depositories of India. A depository participant is an authorised stockbroker, discounted broker, online financial platform, bank or any financial institution associated with the depository. By filling the application form and submitting the necessary documents, you can open an account with any DP. Some brokerage firms such as Kotak Securities offer a three-in-one account that links your bank account to the trading and Demat account. You also have the option of opening a two-in-one account that links only the trading and Demat accounts and not your savings bank account.
Before you decide to open a Demat account, it is essential to cross-check and compare the various -charges involved with leading depository participants. Some brokerage firms might offer a free Demat account, but other fees could be imposed at a later stage that could weigh you down. Standard fees include account-opening fees, annual maintenance fees, custodian charges and transaction costs. These charges are not necessarily uniform and are applied at the discretion of the DP.
Account Opening Fees
Some DPs charge a nominal amount as Demat account fees to open a Demat account. On the other hand, some DPs waive off the charge. Most brokerage firms and leading banks do not charge the customer with an account-opening fee. However, if the customer reopens a dormant Demat account, he/she may have to pay account-opening charges.
Annual Maintenance Fees
Also referred to as folio maintenance charges, annual maintenance fees must be paid to the DB in advance. Depending on the DP, yearly maintenance charges could range from Rs. 300 Rs. 500 per year. Given the rising competition, a growing number of brokerage firms waive off annual maintenance charges for the first year. The fees then come into effect from the second year onwards.
Depending on the number of securities, held in a Demat account, you may be charged a monthly fee as custodian charges. You may not be levied a custodian fee if the share of a particular company is associated with an organisation that has already paid the one-time fee to the depository. Most companies pay these charges as a one-time fee to the depository, and hence brokers do not levy custodian fees on the investor.
Any trading done on your Demat account, such as crediting or debiting of company shares from and to your Demat account can attract transaction fees. Some DPs charge a flat-fee per transaction, whereas others levy a percentage-based fee on the value of a particular transaction. Based on the type of transaction, such as buying and selling of shares, transaction fees can vary. For instance, one DP may charge you during the debit of securities, while another may charge you for buying and selling shares.
In addition to the charges mentioned above, you may also come across additional fees such as credit fees, rejected or failed instruction fees, mailing fees and others. This is why it is vital to learn all about the fees associated with opening a Demat account. Comparing between various DPs can help you choose the right DP and sign for a Demat account.