More people are now putting their money in market-linked investments like shares and equities to earn higher returns in the long run. This is evident from the increasing number of investors having their trading accounts registered with stock exchanges.
On September 28, 2023, the National Stock Exchange (NSE) reported that within the past eight months, the count of newly registered investors on its platform has surged to one crore, pushing the cumulative total to over eight crore.
Significantly, the influx of new investor registrations is not limited to major metropolitan areas, as cities outside the top 100 rankings have accounted for 45 per cent of these registrations. Among the prominent cities, Delhi (including the National Capital Region) makes up seven per cent, Mumbai (including Thane/Raigad) contributes 4.6 per cent, and Pune stands at 1.7 per cent.
The NSE in a press release said, “The eight crore unique PAN investors correspond approximately to around 5 crore unique households in India amounting to around 17 per cent households directly investing in the Indian stock market via the NSE’s extensive nationwide network of trading members.”
For those who are new to investing, it is crucial to establish a demat account prior to commencing trading. You have the option to initiate the process of opening one such account either through a stockbroker or a depository participant. A demat account serves as a digital repository where your shares and various securities are securely stored in electronic format. It plays a fundamental role in stock market trading, as all shares are currently traded electronically.
Demat account charges
Like any valuable product or service, a demat account comes with associated costs. Here's a concise guide outlining all the charges related to the establishment and upkeep of a demat account in India. New investors should familiarize themselves with these charges to make an informed choice when selecting the most suitable demat account for their requirements. Here's an overview of the essential charges:
Account opening fees: Ensuring you examine the fees linked to initiating a Demat account is crucial, as these charges can exhibit substantial disparities among various brokers. Some brokers may provide free account setups, while others may levy a fee. Additionally, it's vital to conduct a comparative assessment of the annual maintenance charges and brokerage fees offered by different brokers before settling on a demat account.
Listed below are several factors that have the potential to influence the fees linked to the establishment of a demat account:
- Type of account: Several brokers provide a range of demat account options, including basic accounts, premium accounts, and trading accounts. The costs associated with each account type can differ.
- Trading volume: Traders engaged in high-volume transactions have the potential to haggle for reduced brokerage rates with their brokers.
- Discounts and offers: Certain brokers might provide promotional discounts on initial account opening fees as well as annual maintenance charges.
Annual maintenance charges: The annual maintenance charges for a demat account are periodic fees imposed by your broker to keep your account active. These charges are typically levied at the conclusion of the fiscal year and can vary between ₹300 to ₹1,200 per annum, contingent on the broker.
Certain brokers may extend AMC discounts to high-volume traders or clients who uphold a specific minimum balance in their accounts. It is imperative to evaluate and compare the AMC rates offered by different brokers before making a decision about your demat account.
Consider these strategies to minimize such charges of your demat account:
- Opt for a broker with competitive AMC rates.
- Engage in negotiations with your broker to secure a reduced AMC.
- Select a broker for your demat account that extends AMC discounts to high-volume traders or individuals who uphold a specified minimum account balance.
Transaction charges: Your broker levies transaction fees whenever you engage in buying or selling shares. Typically, this fee constitutes a percentage of the total transaction value and fluctuates according to the broker and the nature of the transaction (buying or selling).
These fees typically span between 0.01 per cent and 0.5 per cent. Nonetheless, the specific charges can diverge depending on the broker's pricing structure. For instance, certain brokers may introduce reduced brokerage schemes tailored for high-volume traders.
Certain brokers provide reduced brokerage schemes designed for high-volume traders or individuals who maintain a specific minimum balance in their accounts. It's crucial to conduct a thorough comparison of transaction fees among various brokers before finalizing your demat account selection.
Dematerialization charges: Dematerialization charges are accrued when you transform your physical share certificates into electronic form. Typically, these charges are assessed on a per-certificate basis, implying that you will be charged a fee for each individual physical share certificate you choose to convert.
These charges can fluctuate between brokers, but the typical range falls between ₹15 and ₹50 per certificate. Additionally, some brokers may impose a courier charge for delivering the dematerialized shares to your account. Here are some strategies to lower your dematerialization charges:
- Opt for a broker with competitive dematerialization charges.
- Initiate negotiations with your broker to secure reduced dematerialization fees.
- Consider dematerializing all your physical share certificates at once to reduce courier expenses.
- If you possess a substantial number of physical share certificates, contemplate dematerializing them in batches to save on courier fees.
Furthermore, it's worth noting that certain brokers may offer discounted dematerialization charges for high-volume traders or individuals who maintain a specific minimum balance in their accounts. Verify with your broker whether you qualify for any dematerialization charge waivers.
Custodian fees: Custodian fees pertain to the secure storage of your securities within your demat account. Typically, these charges are billed on an annual basis and are determined by the quantity of assets maintained on your behalf by the firm. The fee may fluctuate in accordance with the number of International Securities Identification Numbers (ISINs), which signify the distinct securities you possess within a given month.
Custodian fees are generally modest, commonly falling within the range of Rs. 0.75 to Rs. 1.00 per ISIN per month. Nonetheless, they can accumulate if you hold a substantial portfolio of securities. Here are key strategies to help minimize your overall expenses when investing in the stock market:
- Opt for a budget-friendly broker.
- Limit frequent trading activity.
- Consider investments in low-cost index funds and ETFs.
- Reinvest your dividends for long-term growth.
Certain brokers might impose supplementary fees for delivering physical statements or other documents linked to your demat account. This service is typically optional and can be circumvented by selecting electronic statements. Electronic statements not only offer greater convenience and are eco-friendly but also tend to be more cost-effective. Many brokers provide electronic statements at no cost or for a minimal fee.
To steer clear of charges for physical statements, ensure that you opt for electronic statements when initializing your demat account. Additionally, you have the flexibility to modify your statement preferences at any time.
Consider these advantages of choosing electronic statements:
Convenience: Electronic statements are sent directly to your email inbox, granting you access from anywhere at any moment.
Security: Electronic statements are safeguarded with passwords and encryption, enhancing their security compared to physical statements.
Environmentally friendly: Opting for electronic statements contributes to the reduction of paper waste, promoting environmental sustainability.
Cost-effective: Electronic statements are usually more budget-friendly in contrast to their physical counterparts.
Fees related to the crediting of securities into your demat account may be applicable. These fees are generally modest and are assessed per transaction. They are typically imposed by the depository participant (DP) and can differ among various DPs. Charges related to the crediting of securities into your demat account encompass:
Credit instruction charges: These are fees imposed by the DP for handling the credit instructions received from the seller.
Stamp duty: Stamp duty is a state government tax applicable to specific transactions, including securities transfers. The rates for stamp duty differ from state to state.
Transaction charges: Levied by the DP, transaction charges cover the processing of credit transactions.
Other charges: Additional charges, such as dematerialization and rematerialisation fees, may be linked to the crediting of securities to your demat account.
It's worth noting that these charges are typically modest and are applied on a per-transaction basis. However, if you engage in frequent trading, they can accumulate over time.
Goods and Services Tax (GST)
Applicable to all the aforementioned charges is the prevailing Goods and Services Tax (GST) rate. As of September 29, 2023, the GST rate for financial services stands at 18 per cent. This implies that an additional 18 per cent GST will be incurred on all demat account-related charges, encompassing account opening fees, annual maintenance charges (AMC), transaction fees, dematerialization charges, and custodian fees.
Please be aware that the GST rate for financial services is susceptible to change. Hence, it is prudent to verify the latest information with your broker. Here's an illustrative example of how GST is computed on charges associated with a demat account:
Account opening charges: ₹500
Annual maintenance charges: ₹1,000
Transaction fees: ₹100
Dematerialization charges: ₹50
Custodian fees: ₹100
Choosing the right demat account may seem like an arduous task in the beginning though many people make the mistake of choosing the one that charges the least. Nevertheless, opting for the most inexpensive choice may not consistently align with your distinct needs. Emphasize brokers that achieve a harmonious blend of cost efficiency and high-quality service. Engage in comprehensive research and make comparisons across various brokers prior to finalizing the opening of your demat account.