If you are about to open a demat account, it makes sense to understand what kind of charges you will pay for it. In case you do not understand what charges come under demat account charges, you will find it difficult to select the best Demat account for yourself.
Demat account charges are made up of several charges that a demat account holder pays to a depository participant (DP) depending upon the services provided by the DP. Find below the key factors you should keep in mind to understand demat account charges.
How do we assess the demat account charges of various brokers?
Such charges are typically made up of the following:
- Demat account opening charges: Investors can open a demat account with a broker or a bank. Typically, there are charges associated with opening such an account. Some brokers may even offer a zero account opening fee, which may sound great. However, as an investor, you should check what kind of service they will offer. If they are offering bad service after not charging you an account opening fee, then it doesn’t make sense.
- Account maintenance charges (AMC): This is a common cost associated with a demat account. It depends upon the nature and volume of transactions made by an investor. Typically, such charges are in the range of Rs. 300 to Rs. 800 per year. AMC may vary from broker to broker. Therefore, it’s a good idea to ask about AMC before opening a demat account with a DP.
- Safety charges for holding securities electronically: Before the advent of demat accounts, people used to hold their investments in the form of paper certificates. Hence, they were themselves responsible for their investments. However, ever since demat accounts were introduced, people have held their investments electronically with a DP. Hence, the responsibility has now shifted to DPs. Therefore, DPs or brokers may make an investor pay safety charges for bearing this responsibility.
- Transaction fees: Investors use their demat accounts to buy and sell securities. On these transactions, typically, brokers levy a charge called a transaction fee. This may vary from one broker to another. Different brokers tend to structure these charges differently. For example, some brokers may make you pay a monthly charge for transaction fees; however, others may make you pay transaction fees only when you sell securities. Besides, a broker may charge different transaction fees on his different schemes. Moreover, transaction fees can vary depending on the nature of securities. For example, it’s possible that a broker charges different transaction fees for equity-related investments and derivative transactions. So, investors should be extremely careful about this aspect.
What other factors to know about demat account charges?
- Demat account charges are a function of the service provided by a broker: We have already discussed that demat account charges may vary from one broker to another. These charges are a function of the service provided by a broker. For example, if a broker provides an extremely sophisticated and easy-to-use trading platform, it’s likely that he will charge a premium for it. Then, we have discount brokers in the market, who charge a nominal fee but don’t provide financial advice to their clients. On the other hand, we have full-service brokers, who charge a higher fee than discount brokers, but they provide financial advice to their clients. Therefore, before opening a demat account, investors should ask themselves what kind of services they need. Based on that, they should compare the services and charges of brokers and then make a decision.
- Small investors can open a BSDA account: “BSDA” stands for a basic services demat account. Such accounts are meant for those small investors who do not trade in the stock market frequently. However, an investor can’t tell a broker to open a BSDA account. In case an investor is holding securities worth less than Rs 2 lakhs and he has only one demat account registered with his PAN number across all brokers, then his demat account will be deemed as a BSDA. Annual maintenance charges on such accounts are lesser than on those accounts that are not in the BSDA category.