If you are thinking of opening a demat account, you need to be aware of the associated charges. In fact, before you open an account, you should compare such charges across brokers and then make a decision.
In case you do not make a comparison, you may end up paying a lot more than you should. At times, people have multiple demat accounts. In such a case, it becomes extremely important to know about demat account charges. So, you should always be aware of such charges before opening a demat account.
Top Seven Charges Associated With Demat Accounts
- Account opening charges
This term is self-explanatory. However, bear in mind that account opening charges vary from broker to broker. There are brokers in India, who do not charge an account opening fee. Such charges vary based on the type of account being offered. For example, some brokers offer you a demat and a trading account. However, others offer you a demat + trading + banking account.
- Annual maintenance charges (AMC)
When you have a demat account, you need to pay AMC to your broker for maintaining that account. Such charges also vary across brokers. Hence, before opening an account, you should carefully analyse AMC because they are often a large chunk of what you end up paying to a broker.
- Brokerage fee
This fee is levied on each buy or sell order you place. Hence, you have to be extremely careful of brokerage fees before demat account opening . A broker can make you pay a flat rate for brokerage fees. He may also ask you to pay a certain percentage of the value of the transaction. Some brokerage firms ask you to pay a combination of a flat rate and a percentage of the transaction amount. If you trade frequently, brokerage fees may affect your profit or losses significantly.
- Securities transaction tax
Stock market participants have to pay the securities transaction tax on buying and selling securities. This tax, which is levied by the government, is imposed on the value of transactions.
- Exchange fees
This fee is payable to the stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). For example, on equity intraday and delivery, the NSE fee is 0.00322%. On F&O futures, the fee is 0.00188%.
- Dematerialisation and Rematerialisation Charges
When you convert your physical shares into dematerialised shares, you have to pay dematerialisation charges. However, when dematerialised shares are converted into physical shares, rematerialisation charges have to be paid. Typically, these charges are levied for each physical security and their rate varies from one broker to another.
- Pledge charges
When you use your securities in the form of collateral to get a loan or for any other financial transaction, you may be required to pay pledge charges. This is typically a one-time charge, which is paid to process the pledge.
Conclusion
It is extremely important to know about demat account charges when you want to open an account. Most of these charges vary across brokers. Hence, you have to carefully analyse them while making a decision.
Moreover, brokers may also change these charges after you have opened a demat account with them. So, you should be careful of this aspect as well.
That being said, the decision to open a demat account should not be a function of only associated costs. This is because a broker may charge a higher fee but may provide better service than other brokers, and vice versa. Hence, along with the costs, you should also consider the service while opening a demat account.