With the arrival of Demat Account format, investors no longer have to worry about the theft of their securities and investment documents or running the risk of damaging them. The Demat Account format allows the investor the facility of dematerialising or digitizing their equity shares from physical format to electronic format. It is a one-in-all account where you can hold all your securities, shares, bonds, mutual funds under one umbrella, thereby facilitating the ease of monitoring or trading your stock. Just like a bank account, the Demat Account highlights your shares activity in the form of credit and debit of securities based on your purchase and sale respectively.
Opening a Demat Account is a relatively simple process especially with the aid of an online platform facility.
Only when you understand Demat Account charges can you figure out how to reduce them. SOURCE: Pixabay
With all these, one important thing to keep in mind about the Demat Account is the different Demat Account charges which the investor has to meet with while maintaining the account. Demat Account charges or the rates may vary with different financial institutions, however, it is necessary to know what they are and what things you should keep in mind regarding them so as to effectively manage both your transactions and your Demat Account.
Though the opening fee for Demat Account charges used to be around anywhere between Rs. 500-1000, these days you can open a Demat Account for a fee that is either nil or negligible.
● The opening charges for a Demat Account may involve a brokerage fee or they can be altogether free.
● In case you have to pay, with the due assistance of full-service stockbrokers chances are you might land a considerable discount or waivers in your account opening fee.
● Though additional costs may be charged by the brokerage firm for costs involved on your account such as for SEBI’s statutory levies or for Goods and Services Tax (GST).
Annual Maintenance Charge (AMC) which is also known as Account Maintenance Charge is a specific amount charged by the depository personnel for the effective maintenance of your Demat Account. Though there are instances where AMC is waived when the transaction extends beyond a certain limit.
Also, with some financial institutions, you do not have to pay AMC for the first year. These benefits are extended as support and encouragement to the investor. Since there is no guideline which mandates waiving AMC, therefore you should clear about Demat Account charges with your broker while opening your account.
Dematerialization is the process in which your physical share certificates are converted into the electronic format thereby becoming de-material. The service of converting your shares from physical to electronic format involves a fee that your broker or depository personnel charges. The thing to keep in mind here is that while some brokers or DPs will directly charge a fee for each share certificate to get dematerialized, others charge on the basis of your total share value.
The same scenario holds for rematerialization: the process where the dematerialized share certificates are reconverted to physical share certificates. The fee is charged in the same way for rematerialization as for dematerialization, although the rates of the two may differ.
Custodian fee or safety charge is one of the constituent parts of the Demat Account charges. Before the advent of the Demat Account, the responsibility of keeping physical share certificates safely lied with the investor. Now with the Demat Account, the investor can transfer this responsibility, or to say the burden of the security of his equities, to the DP. The DP will ensure the safety of your electronic share certificates from any harm.
In return for this service, a nominal custodian fee is charged from the investor which is based upon the number of equities one holds in one’s Demat Account. Therefore, you should also inquire about the custodian fee different financial institutions charge before you open a Demat Account.
The transactions in your Demat Account have a singular unified aim: to make a profit for you. Keeping this in mind, the DP, in return for his assistance in making you earn profits, usually charges a certain fee on your transactions. Depending on different DPs, some charge a transaction fee on the basis of the number of transactions you made while the others charge on a monthly basis. Also, the fee involved may differ in different transactional activities. For instance, the charges levied on credit or debit in your Demat Account usually varies.
A Demat Account is credited when you purchase new shares, whereas it is debited upon the selling of your electronic shares. With some DPs, the charges are levied on both the crediting and debiting activities in the account, while others charge only when you sell (debit) your equities.
The conversion of the mutual fund units, which are generally held physically, into de-material or electronic form is also involved in the Demat Account charges. In a usual scenario, the Depository Participants charge a direct conversion fee for converting each of your mutual fund units into a de-material form.
Apart from these Demat Account charges, there are also other minor charges of which you should be aware of. These include redemption charges and postal charges. There are also some ways in which you can get rid off a few expenses that go while maintaining a Demat Account:
● If you do not happen to be an active trader, you can opt for a Basic Service Demat Account. According to SEBI, these accounts are specially designed for those Demat users who cannot invest on a regular basis. In comparison to others, a Basic Service Demat Account is low-cost and may even give you the benefit of not having to pay AMC.
● Try to purchase more often than sell your shares. The charges levied in purchasing new shares are not charged by many DPs.
● Opting for brokers who provide discounts is another way to cut down on your expenses. In the discount policy, the brokerage fee would be usually charged once, irrespective of the number of transactions you make.
Only with a proper awareness of all these charges, you can ensure which financial institution would serve as the most compatible for you. Also, having comprehensive knowledge of these charges may even help you reduce your expenses that go into maintaining a Demat Account.