When the representative of a Stock Broker visits you to get multiple signatures of yours on the account opening form, most of the discussion shall be around the Brokerage amount, isn’t it?. But are you aware that there will be different types of charges associated with the demat account apart from brokerage?
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There will be a separate section on demat charges in the account opening form but most of us never heed much importance to it. Stock brokers lure the investors with multiple offers but they make up for that through multiple demat Charges which they charge us eventually.
Let us look at various costs linked with Demat Account. Some of these are one time and some are repetitive and others are on transaction basis.
Demat Account Opening Charges:
Account opening fee will be one time charge levied while opening the demat account. There was a time brokers used to charge exorbitant amount in the range of Rs 1500 to Rs 2000.
But due to heavy competition nowadays most of the DPs have waived off this amount. Instead they collect initial margin money that will be credited to your demat account on account opening.
Their main idea is to reduce the number of accounts that will be opened just because there is zero account opening fees. Also the funds in demat account normally tempt the customers to do transaction.
Annual Maintenance Charges (AMC Charges) :
AMC Charges are deducted once in a year and usually in the range of Rs200 to Rs900 depending upon the stock brokers. AMC charges sometime is also called Folio Maintenance Charges.
Normally the banks who offer 3-in-1 Demat accounts charge higher AMC charges compared to Full Service Brokers and Discount Brokers. If you are not aware of who are Full service broker and Discount broker, we strongly recommend you to read this article about various types of Share Brokers of India
Some brokers wave off the AMC charges for demat account for the first year but charge from second year onwards. Dont forget to check with the broker on this aspect before opening the account.
Another set of brokers such as Angel Broking offer lifetime free demat account with zero AMC charges on deposit of certain initial Margin amount.
But to enable cost effective way of investment experience for the small investors, the Securities Exchange Board of India (SEBI) has introduced another type of demat account called Basic Service Demat Account (BSDA) in which there will be no AMC charges for portfolio holdings upto Rs 50,000.
DP Transaction Charges:
Simply called DP charges, it is levied only for sell transactions. The brokers charge DP charges for every sell transaction you do. However there will not be any charges for buy transactions.
The DP Charges are usually in the range shown below
- Rs 8 ( Charged by Broker) + Rs 5.5 (By the Participants) + Service tax for every market transactions
- 0.02% or Rs 20 which ever is higher for off market transactions
Dematerialization and Re-materialization Charges:
Long back the shares are issued as physical certificates and passed from one generation to another. But with the advent of technology now it is mandatory to hold the shares in electronic form through demat account.
However, still few people hold the physical certificate due to various reasons. If these certificates to be converted to digital forms, the stock brokers shall charge nominal fees. You just need to fill up a form called Dematerialization Request Form (DRF) available with broker and submit along with the certificates.
Broker can choose to charge either per certificate basis or per ISIN basis ( Shares of one company shall have a single ISIN number). Normally it is in the range of Rs 5 to Rs 25 per certificate.
Vice versa, the electronic holding can also be converted to physical form and the process is called Re-materialization.
Pledge and unpledging Charges:
One can pledge the shares he is holding in his portfolio. It is like taking the loan against your holdings which will enable you to use that amount to do more trading.
Instead of keeping the shares idle in the portfolio, certain traders pledge the shares with brokers and do intraday trading with that funds.
Each broker shall charge you differently on this, for example, Sharekhan charges 0.03% of the pledged value and Zerodha charges Rs 60 per scrip irrespective of the pledged value.
The same amount will be debited when the shares are unpledged.
Freeze and De-Freeze Charges:
It is possible to instruct the broker to freeze the demat account which will help in avoiding unexpected debit of shares from the demat account. Freeze instructions can be given for the entire demat account or only for particular scrip.
Stock brokers usually charge around Rs 25 to Rs 50 per freeze/defreeze request.
End note about Demat Charges!
As you see, the brokerage commissions are not the only charges associated with a demat account. Stock brokers make much more through these demat charges which they print at the end of the account opening forms in small letters!
Usually normal customer who never bothered to read the entire form confuse these demat charges as the hidden charges and confronts the broker. These are not hidden charges as they are already communicated in the account opening booklet.
This article just tried to explain in detail about the demat charges. Please consider sharing the post through social buttons on your left/below with family and friends to spread the information of cost involved in holding a demat account.