Last Updated: Mar 21, 2024 Value Broking 8 Mins 2.2K

According to SEBI (Securities and Exchange Board of India), investors must open a Demat account in order to invest in the stock market  Aside from futures and options trading, every other type of financial security, such as shares, debentures, bonds, mutual funds, insurance, and so on, must be stored in electronic form. Demat, an abbreviation for dematerialization, is designed to keep, track, and monitor financial market security conveniently for investors. A Demat account is opened through a DP (Depository Participant), such as a bank, stockbroker, internet trading platform, or other financial institution. Charges for creating a Demat Account will vary according to the DP you select.

A Demat account is like a bank where your securities are stored. Bonds, non-convertible debentures, mutual funds, and exchange-traded funds are all held in Demat accounts. During trading, the transaction of shares happens from your Demat count. Various charges are applicable when you trade on the stock market. DP charges are the charges levied by depository participants.

Depositories are organizations that ensure the safety and maintenance of Demat accounts. These charges apply to the depositories and DP to generate revenue. It’s a fixed amount deducted from every share you sell in 1 transaction to ensure your shares are kept securely with depositories. In India, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CSDL) are the 2 Depositories responsible for all Demat accounts.

Depositories take a certain fixed percentage of DP charges. The rest of the amount is given to the DP through which the transaction was made. It is the only source of income these depositories have. There are also various Demat account charges, from charges for opening a Demat Account to nominal fees. 

All Direct Charges Involved in the Demat Account

Opening a Demat account to trade online may appear simple, but it is not if you are unaware of the fees and Demat account cost involved. While many brokers provide their customers with a free Demat account, there may be some Demat charges assessed later. There are several methods for opening a Demat account, each with its own set of fees. In addition, while some firms provide a trading account in addition to the Demat account, others require users to register a separate trading account. Whatever the case may be, it is critical to understand all of the Demat account charges.

Apart from DP Charges, here is a list of Demat account charges you can face.

Demat Account Opening Charges

Previously, banks charged between Rs 700 and 900 as opening fees. However, despite the opening fees, prospective investors were flocking to them to open Demat accounts because of the well-integrated banking network and investing services and the ease of stock market investment through the three-in-one account, which included trading as well as a bank account.

Nowadays, you have to pay Demat account opening charges, also known as Demat account opening fees. However, the charges for opening a Demat account vary according to different brokers, and some DP offers to open a Demat account for free.

Brokerages and banks make it a point to provide a perk for opening two-in-one or three-in-one accounts. These accounts make it exceedingly simple for novice and casual users to trade or simply invest in the stock market. All transactions involving these accounts are frictionless and integrated on a single platform. Brokerage companies, on the other hand, charge for any additional fees incurred, such as stamp duty, GST, or other statutory tolls imposed by SEBI.

Account Maintenance Charges (AMC)

A Demat account holder must pay an annual maintenance charge (AMC) to the depository participant (DP) for the services provided. AMC is applied for the maintenance of your Demat account. These payments, also known as folio maintenance charges, must be paid in advance and normally vary from Rs 300 to 900 each annum. Some DPs may additionally charge quarterly fees, while others may levy a lifetime price of more than Rs. 2000. However, with so many DP competing for clients, several of them have eliminated AMC payments for the first year and started billing from the second year alone.

AMC rates for DP under banks are typically varied. The charge can vary based on the DP you have opened your account with. A few DP also provide Demat accounts with zero AMC for your lifetime. Banks that provide three-in-one (demat, trading, and savings) accounts often charge less because the trading account is linked to the same bank’s savings account. However, if the mapping is with another bank’s savings account, the fee is more.

Demat Account Custodian Fee

Usually, Depository Participants (DPs) pay custodian costs as one-time charges to the depository, and a few do not charge custodian fees to investors to keep a Demat account. Every monthly basis, charge custodian fees. These fees are based on the number of securities kept in a Demat (also known as a dematerialized) account. Each ISIN (International Securities Identification Number) fees are typically between Rs 0.5 and Rs 1. For companies that have already paid the one-time payments to the depository, the DP, i.e., your bank or broker, do not charge any custodian / custodial fees for the ISIN. Previously, most DP charged consumers for credits and debits to their Demat account. However, most DP now solely charge for debits to your Demat accounts.

Debit Transaction Charges

A charge is applied whenever you sell a share and debit from your account. Depending on your stockbroker, it can be a fixed fee or % based.

Off-Market Debit Transactions Charges

It is a charge levied when share transactions are not happening on the stock market. A few situations where off-market debit transactions charges are applied are

  1. Transferring ownership of shares.
  2. Gifting shares to any family member.
  3. Transferring shares between two Demat accounts.
  4. Transfer of securities between a sub-broker and a client.
  5. Transactions in unlisted securities.

Pledge Creation Fees

This charge is applicable when the shares in a Demat account are pledged or provided as collateral for a loan. Every time a pledge is created, these shares will apply.

Pledge Invocation Fees

If you pledge your shares and default on your loan or cannot pay your loan back, an instruction for invoking the pledge is submitted to the DP. A Pledge Invocation Fees is applied when such a situation occurs on the shares.

Dematerialization Charges

A charge is applied when you choose to convert your physical shares into electronic form to be stored in your Demat account. A DP charge is a Dematerialization fee. It is a fixed amount per security certificate. 

Rematerialization Charges

If you choose to Rematerialize your shares from your Demat account, a Rematerialization fee is charged. You might also pay for the Security Certificate to be couriered to you along with the fee.

Modification in Address, Email, Mobile, and Bank Updation Fee

A charge is applied for any modification in details done to your Demat account.

Postal Charges

Postal expenses apply in the case of offline Demat account opening. The depository participants charge a modest fee for physically couriering papers and statements of accounts to your residence address or the address you mentioned when you opened the account.

Delivery Instruction Slip Charges

A Delivery Instruction Slip (DIS) is issued for every transaction so that shares are debited from one account and credited to the correct account. In addition, it facilitates and authorizes the sale or transfer of shares from one account to another. You must submit a DIS slip to your Demat account provider or DP (depository participant) to complete a transaction. A charge is applied for every DIS issued. 

Consolidated Account Statement

A Consolidated Account Statement (CAS) contains all your Demat account information. It provides complete information on your Demat account and its performance, helping you better understand your investments. A fee is charged every time you ask for a CAS.
These are all the fees associated with your Demat account apart from DP charges.

How to Minimize Unnecessary Demat Charges?

There are some ways you can minimize a certain amount of fees while opening a Demat account, and the following will help you:

  • Choose a brokerage firm that provides competitive pricing on brokerage plans. As there are so many companies in the market, you can contact them all and compare their plans to get the best one.
  • Open a Demat Account with Basic Services. These are specifically created for modest or inexperienced investors who do not trade on a daily basis. They have a holding cap of Rs. 2,000,000, which is suitable for a beginner investor.

With so many options available in your Demat account, paying a fee for transactions and maintenance stands to reason. However, before settling on the best brokerage business for your needs, make sure to examine several options.

Frequently Asked Questions (FAQs)

Demat account opening charges vary depending on the stockbroker. It could be as low as zero with no actual maximum cap.

A Demat account can get opened with any depository participant (DP). A depository participant can be a bank, a stockbroker, or a Non-Banking Finance Company. A DP helps you open a Demat account with a Depository that stores and keeps your Demat account safe.

Apart from account opening charges and Account Maintenance charges, it is impossible to skip the rest of the charges. You will have to pay charges based on the actions you take concerning your Demat account. However, multiple stockbrokers let you open a Demat account for free. Apart from zero Demat account opening fees, some stockbrokers also help you with no lifetime charges for Demat account maintenance. It can be a boon, especially if you know to invest and lower your expenses.

Depositories are responsible for managing Demat accounts. They ensure the safety of all Demat accounts. They have to follow the regulations laid down by India’s Securities and Exchange Board (SEBI). They also act by clearing housing, ensuring all transactions are carried out smoothly. They keep records of all transactions ensuring that forgery doesn’t take place. They also provide that no mistakes are made, and every investor receives the number of shares they have paid for.

Various Banks and Non-Banking Financial Companies provide loans on the multiple Securities stored in your Demat account. You could get close to 90% of the value of your complete Demat account as a loan. Providing your Demat account as collateral is a great way to earn money in an emergency. Pledge only a few securities instead of your complete Demat account as collateral.

Investors looking for a cost-effective option can consider comparing brokerage firms’ charges and fees. Some brokerage firms offer zero account opening fees and are competitive like Zerodha, Angel One, Groww, etc.

There is no specific limit on the number of demat accounts an individual can open. Investors can have multiple demat accounts with different depository participants (DPs) based on their needs.