Opening a Demat and Trading Account in India: Your Total Expenditure Explained

1. Opening a Demat and Trading Account in India: Your Total Expenditure Explained There’s hardly anything more exhilarating than reaping the returns of your meticulous investment in a security or scheme. And your demat and trading accounts are the official repositories for these returns to be deposited. Moreover, the demat account also serves as an electronic database of all the shares and securities held by an investor. As a result of massive technological advancement and its extremely significant influence on the investment sector, opening a demat trading account is now a breeze! However, many investment beginners are often confused about the nitty gritties of the expenses incurred while creating demat and trading accounts in India. Here’s a bifurcation of the expenditures involved in opening your demat and trading accounts in India: Opening a Demat Account Opening a demat account typically does not incur any charges in itself. A stock brokerage firm cannot charge a fee from the investor merely for opening a demat account. However, a demat account does comprise an Annual Maintenance Charge (AMC), which can range up to Rs. 900/-. The AMC is automatically deducted each year from the investor’s account. While the AMC is also a nominal fee in itself, persons who seldom engage in investments may find this charge somewhat expensive. For such situations, there also exists another more nominal option for investors with comparatively lower investment corpuses (below Rs. 2 lakh). This avenue, called the Basic Services Demat Account (BSDA), can be utilized by individuals who are perpetually inactive in investing in securities such as stocks, bonds, ETFs etc.

2. Besides the Annual Maintenance Charges, some other overhead charges are also applicable to the investors when they open demat account online. Firstly, the National Securities Depository Limited (NSDL) and Central Depository Services (CDS) charge the depository participants for every transaction from the demat account. In turn, this charge is levied upon the investor by the depository participant. In addition, converting physical records to electronic repositories can also entail charges. While setting up your demat account, it is important to ensure that there is no cheque bounce or any discrepancy while filling up the demat request form, as these could result in serious penalties. Opening a Trading Account While the demat account is your first step to investing in major asset classes like stocks, bonds and mutual funds, a trading account is a prerequisite for buying and selling major securities as well as derivatives, including investing in currency, commodity trading and futures and options. Typically, the agreement you sign with the broker before entering into the association would consist of all the necessary information on the expenses and brokerage fees involved in the process. While opening a trading account, it’s always advisable to compare the rates of different stock brokers and brokerage firms vis-à-vis the quality and range of services offered, and make an informed decision accordingly. In addition to the brokerage fee, there are certain taxes an investor must pay while opening his/her trading account. One of these taxes is the Securities Transaction Tax (STT), levied as and when an investor buys or sells a security. The STT rates to be paid by the buyer and seller differ on the basis of the security traded. For instance, in case of equity mutual funds, STT is not applicable to the buyer, but levied at the rate of 0.001% of the total amount for the seller. Typically, the

3. STT is mandatory (wherever applicable) even for dealings consisting of 0% brokerage. Besides the STT, Goods & Services Tax (GST) at the rate of 18% is levied on brokerage and transaction charges. Stamp duty may also be applicable on such transactions. Conclusion Opening a demat trading account and completing one’s KYC process are the first mandatory steps to starting one’s investment journey. Having a thorough understanding of the general expenditure involved in opening demat and trading accounts, as well as specific knowledge about the charges to be levied upon you for the particular investment or trading security or scheme opted for can help you manage your expenses wisely. Click here for expert guidance on opening your demat and trading accounts today!