Posted on June 05, 2019
Long gone are the days when an investor had to go through the rough and tumble to buy and sell shares. The invention of demat accounts in 1996 eliminated the tedium of paperwork. Now, the investor can invest in shares at their convenience.
No longer does an investor have to purchase share transfer stamps, visit the company’s registrar and get shares transferred. The demat account — which is now mandatory for stock trading — takes care of the entire process, with ease!
However, this convenience comes at a small price. Learn what are depositories and depository participants, what is a demat account and the importance of it, and the charges an investor needs to bear in order to trade.
Depositories and Depository Participants (DPs)
Depositories are companies that hold securities in an electronic form and facilitate transacting. In India, SEBI has two registered depositories: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Depository Participants (DP) are agents between depositories and investors. To avail the services of a depository, an investor needs to go through a DP. For example, us.
The account an investor needs to have with a DP is referred to as a demat account.
Demat Account
A demat account is similar to a bank account but not entirely. The only difference is that instead of money, a demat account holds securities like shares, bonds, or debentures. In order to buy securities in the stock market, primarily, an investor must open a demat account with a Depository Participant (DP).
What are the benefits of a demat account?
- Enables an investor to invest online
- All shares and securities are held securely
- Enjoy significantly lesser transaction cost compared to the physical transactions, as an investor does not have to pay stamp duty
- Convenient and fast electronic settlements
- Reduced paperwork
- Risks linked with physical certificates, such as thefts and piracy of certificates, are eliminated
Charges associated with opening a demat account
1. Demat Account Opening Charges
An investor can open a demat account with any depository participant (DP), such as banks, stockbrokers or online investment platforms. Cost of opening an account may vary from one DP to another.
2. Safety Charges (Custodian Fee)
Earlier, investors found it difficult to keep their share certificates safe. However, demat accounts have erased those worries. The shares can no longer be stolen as they are kept in an electronic format. Depository Participants (DPs) being custodians, charge investors a certain fee for their shares. Safety charges are usually levied annually unless specified otherwise.
3. Depository Participant's Annual Maintenance Charges (DP AMC)
DP AMC is the charge that a depository participant charges an investor for the services provided by them along with maintaining their demat account. The charges may vary between online and offline trading. When you choose to trade online, you have to pay less charges.
When it comes to investing, every penny counts, that is why we offer a competitive brokerage and transaction rates and insightful research on products and services.
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