The advent of demat accounts has transformed how one invests or trades in the stock market. Before the introduction of demat accounts, physical shares had to be maintained, recorded, and handled, which often resulted in mistakes and inefficiencies.
With the introduction of demat accounts, shares and securities are now kept electronically, offering investors an efficient, safe, and cost-effective option. While it provides a convenient and secure method to store and manage investments, it also comes with some charges. With a little time and effort, one may significantly reduce the costs connected with the demat account.
Demat Account Charges
Before understanding how to decrease the demat account costs, let us go through some of the demat account charges.
1. Opening Charges
Opening a demat account is compulsory to trade and invest in the stock market. To open a demat account, one must contact a DP (depository participant) or commonly known as a broker.
The DP may charge a minimal opening fee to open a demat account. In certain situations, the DP or broker may offer the option of using the demat account for free for the first year and then charging the following year.
Remember for intraday trading also; one requires a demat account.
2. Maintenance Charge
In addition to the initial charges for opening a demat account, an annual maintenance charge is required to keep the demat account active. These charges are normally invoiced yearly and are relatively minimal, depending on the DP and the number of transactions in one’s account.
3. Transaction Fees
Transaction or brokerage charges, unlike other demat account charges that some DPs may waive, are always applicable. Transaction fees are incurred when purchasing or selling stocks through a demat account. DPs often levy these fees for each transaction performed through the demat account. Fees may vary according to the DP and the kind of transaction.
Some DPs impose a fixed monthly demat brokerage fee for all transactions, while others charge a fee dependent on the number of transactions.
4. Custodian Fees
Every month, DPs (including stockbrokers, banks, and trading platforms) charge a nominal amount as safety or custodian charges for each security. Some corporations may waive this fee.
5. Miscellaneous Charges
Besides the above charges, one may also have to pay miscellaneous expenses, such as stamp duty, GST, administrative costs for Delivery Instruction Slip, etc., for the demat account.
Ways to Reduce Demat Account Charges
Here are a few suggestions to help minimise the demat account charges:
1. Open Basic Services Demat Account (BSDA)
Opening a Basic Services Demat Account is one way to reduce the demat account expenses, especially if one is not a regular trader. The Securities and Exchange Board of India (SEBI) introduced these accounts as a low-cost option for investors who do not trade regularly.
However, it is crucial to remember that these Demat accounts have a holding limit of Rs. 2 lakhs, which may not be ideal for one seeking bigger investment options.
2. Discount Brokerage Plans
Signing up with a broker that provides discount brokerage plans is another approach to reduce the Demat account charges. These plans often impose a fixed fee for brokerage services, regardless of the number of transactions.
This plan allows regular traders and traders engaging in intraday trading to save a lot of money on their trades.
3. Look for the Most Competitive Prices
Opening a Demat account with a brokerage company that provides competitive brokerage plans is another approach to reducing the Demat charges. Traders and investors can compare different plans on the market to find the best rates.
How to Create a Trading Plan That Is Effective for You
Being a successful trader requires creating a trading strategy that works for you. To get you started, follow these steps:
Establish Your Trading Objectives and Goals
Setting goals and objectives is the first stage in creating a trading strategy. Do you wish to become a full-time trader or are you searching for part-time income? What is your favorite trading style and what is your risk tolerance? The type of plan that is best for you can be determined by how you respond to these questions.
Choose Your Trading Strategy
It’s time to decide on your trading strategy after you’ve established your aims and objectives. As we discussed earlier, there are four main trading styles to choose from: scalping, day trading, swing trading, and position trading. Each style has its own strengths and weaknesses, so it’s important to choose
Conclusion
Finally, numerous methods exist for lowering the charges connected with the Demat account. When deciding on the best option, evaluating the trading activity, financial goals, and budget is critical. Furthermore, before opening a Demat account, it is essential to research and assess the costs imposed by various Depository Participants. By taking the time to weigh all alternatives, one may reduce the Demat account charges while increasing the return on investment.
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