Every mechanism has some critical components, and in order to understand the mechanism, it is important to comprehend how those components work. In the context of the securities market, demat accounts are one of the key components in the process of trading and holding market-linked securities.
You can open a demat account online and there are various depository participants to choose from. In this article, we shall discuss what is a demat account, what are the major demat account charges and how you can reduce them.
What Is A Demat Account
Simply put, a demat account is a account that holds dematerialised securities. After the settlement of your market orders, the purchased securities get added to your demat account in a paperless form. On the other hand, sell orders result in a debit or securities from your demat account. You can open demat account online after comparing various demat offerings on metrics such as price, features, credibility of the depository participant, etc.
Major Types Of Demat Account Charges
As is the case with almost all products and services, demat accounts entail certain charges. The type and quantum of demat account charges you shall have to bear depends on the depository participant you choose, the type of account you select (vis-a-vis features), and the volume of activity in said account. Let us discuss the major types of demat account charges.
- Account opening charges: This type of demat account charges is levied at the time of account opening.
- Transaction charges: Each transaction in the securities market are carries a host of transaction costs. While some stock brokers levy flat flees for each transaction irrespective of the value, others follow a percentage model for computing transaction charges.
- Annual Maintenance Charges: Charged on a yearly basis, this type of demat account charges is usually a flat fee ranging northwards of Rs. 300. The AMC for different types of demat accounts may vary.
- Custodian charges: This type of demat account charges is levied for the services of custodianship (safekeeping of demat holdings) rendered by a depository participant.
- Account reactivation charges: The fee that accompanies the reactivation of a dormant demat account is termed as account reactivation charges.
How To Minimise Your Demat Account Charges
There are various ways to reduce the overall demat account charges you have to bear. The key lies in choosing to open a demat account that is in line with your investment requirements and expected outlay vis-a-vis account cost. Here are some ways to reduce your demat account charges.
1. Open A Demat Account With Low Cost And Features
You can open a demat account that has no account opening fee, minimal transaction charges, and feasible yearly charges. In order to do so, you must compare various demat account offerings before choosing one. You can consider a Basic Services Demat Account; such an account can hold securities with a maximum value of Rs. 2,00,000, and attracts no Annual Maintenance Charges for yearly holdings upto Rs. 50,000.
2. Refrain From Choosing Demat Accounts With Unrequired Features
Modern-day demat accounts comprise a host of features that can make investing easy and informed. However, it is important to choose a demat account based on your specific investment requirements. This way, you can avoid paying high demat account charges for features you are not going to use frequently.
3. Do Not Let Your Demat Account Become Dormant
In order to avoid the levy of account reactivation charges on your demat account, you must keep the account active. If you carry out any transactions through the linked trading account during a 12 month period, your demat account shall remain active.
4. Avoid Opening Too Many Demat Accounts
It is permissible to open demat accounts with different depository participants, and investors often do that to segregate investments in various asset classes. However, each demat account carries its own list of charges, which is why you must only open and maintain demat accounts which you really require.
The Bottomline
We hope this information on what is demat account, various types of demat account charges and measures to reduce them is helpful to you. You can open a demat account online and choose an account with the features and cost that fit your requirements.
