Demat Account is necessary to hold shares/stocks and with the help of it, traders can easily trade in the share market. Four main types of charges rise on the Demat Account which is given below:
- Account opening charges
- Annual Maintenance Charges (AMC)
- Custodian Charges
- Transaction Charges
1. Account opening charges – It is the charges given by the traders for opening the new trading account. To easily trade in the stock/share market Demat account is mandatory. So Investors have to open its Demat account. Demat account is the place where shares of the trader’s stores electronically.
2. Annual Maintainance Charges (AMC) – Annual Maintenance Charges is the charges taken by the brokers to store the share of the investors for its future trade. Different brokers may have different annual maintenance charges for its customers.
3. Custodian Charges – It is the amount of brokerage or other financial institution fees that clients have to pay to hold their securities, thereby Custodian minimize the customer’s threat of loss or theft of the share and securities and making them accessible for sale by the brokerage if asked by the client
This fee is charged on the monthly basis and depends upon the quantity of securities (international securities identification numbers – ISIN) detained in the account. It normally varies between Rs. 0.5 to Rs. 1 per ISIN per month.
Depository Participants will not allege custody charges for ISIN on which the companies have paid one-time custody charges to the depository. The majority of the main companies have paid it and so there is no custodian charge to be paid by the retail investor.
4. Transaction Charges – Transaction costs are fees charged by financial companies or brokers in the buy and sell of the shares.
HOW IT WORKS
When investors purchase or sell securities with the help of the broker or another financial intermediary, the intermediary charges a commission or fee for providing this service.
These are costs to the client that usually includes two components:
1) The basic costs charged by the mediator
2) The spread, or differential, between the price paid by the broker for the security and the price at which he is selling it.
To illustrate, let suppose Mr. Roy buy 100 shares of ABC stock from his stockbroker. He pays $200 for the shares at $2 per share. Stockbroker originally purchased the shares for a total of $180, incurring a $20 spread charged to MR. Roy. In addition, Stockbroker charges a base $20 brokerage commission. Mr. Roy pays stockbroker a total of $220 even though the actual cost of the shares was $180.
But compared to brokerage charges, maintaining a Demat account is very economical and most of the investor would pay the very nominal amount for the Demat account. But a brokerage cost is a different thing. Brokerage cost could make your mind up whether you end up as a winner or loser in the share/stock market.