A Demat account allows you to hold equity and debt instruments in a single account. It should be noted that almost all stock trading transactions take place in dematerialized mode today. It is mandatory to open a Demat account to trade in the Indian stock exchange.
A Demat Account takes care of everything in stock trading. It facilitates
- Immediate transfer of securities
- Transfer of ownership
- Preservation and custody of securities, no worry about securities certificates being stolen
- Buying and selling of shares, mutual funds, and other securities
- Automatic and immediate debit/credit into the Demat account.
Therefore, as per the SEBI regulations and given the convenience factors in stock trading in dematerialized mode, one must have a Demat account.
Demat Account incurs several charges. There are account opening charges, annual maintenance charges, and transaction charges. These all depend on stock trading activities by investors. Investors are required to pay the charges in the form of:
- Demat Account opening charges
- Annual account maintenance charges
- Transaction Fees
- Demat and Remat of securities
- Delivery Instruction Slip Charges
- Consolidated Account Statement
Let’s discuss each of the charges involved in opening a Demat Account:
1. Account opening charges:
Demat account opening charges can be nominal or nil. Many brokers waive-off account opening charges. Some brokers offer to open Demat-cum trading account while some (mostly banks) offer a three-in-one account (savings account, Demat account, and trading account).
2. Annual maintenance charges (AMC):
There will be an annual maintenance charge for your Demat account, and you need to pay a nominal annual fee for it. AMC can be charged between Rs.300 and Rs.2,500, depending on the broker. It may be charged quarterly or annually. Some DPs offer Free Annual Maintenance for the first year of the Demat Account opening.
3. Transaction Fees:
It is a fee levied on the stock market transactions. DPS may charge a flat rate per order or a percentage-based fee. It bases the transaction value, and it can vary across different brokerage firms. It is the fee the broker charges for providing you broking services. Full-service brokers provide research reports, trade advisory, and analysis tools, and hence their brokerages tend to be higher. Contrary to that, discount brokers offer basic infrastructure for trading and shareholding with Demat and trading accounts, so their brokerage tends to be comparatively lower.
4. Dematerialization Charges/Rematerialization Charges:
It is the fee to dematerialize/Rematerialize physical shares. A physical share certificate cannot be traded in the stock exchange. It must be converted to digital form- this process is called dematerialization. The opposite of this is Rematerialization. The security holder has to surrender the physical security certificates to the DP for dematerialization. Holdings registered in the name of the account holder can only be dematerialized. There is no rematerialization fee charged for Government Securities. There are many DPs in India, and the cost varies.
5. Delivery Instruction Slip Charges:
Delivery Instruction Slip (DIS) is used in all Demat transactions to transfer shares from one Demat account to another. It acts as a Cheque Book. The first DIS booklet, containing ten slips, is free for investors. And additional booklets are chargeable by your DP.
6. Consolidated Account Statement:
Consolidated Account Statement (CAS) is introduced by SEBI to monitor your investment portfolio. It can help you track the investments you hold – shares, mutual funds, bonds, debentures, or any other kind of securities, and it’s value. A small fee is charged to the investors for this.
Thus, the point to note is that though Demat Account opening charges may be nil, brokers do charge above specified costs for a secure and integrated system for stock trading that takes care of everything and their services that allows you to trade at the comfort level of your home by just passing instructions to your Depository Participant.