What Does Depository Charges Mean in the Stock Market?

In the stock market, a Demat account is a compulsion for trading in the equity segment. This is because the Securities and Exchange Board of India (SEBI) mandates that traders must have a Demat account irrespective of the type of trading they carry out while equity is involved. A Demat account service is provided by a depository which can be accessed with the help of a depository participant (DP).

To understand depository participant charges, we must learn what an online Demat account is, what depositories are, and what DP is. A Demat account is similar to a bank account but is used to store securities in an electronic format. Securities can be converted from their physical form to be stored securely in electronic format. Multiple types of securities can be stored in a Demat account, like:

• Equity, i.e. shares or stocks of a company
• Bonds and Debentures
• Sovereign Gold Bonds
• Exchange Traded Funds
• Government Bonds
• Mutual Funds
• Tax-free Bonds
• Certificates of Deposits

What Is a Depository?

A depository is a functional body that provides multiple services. These services include:

• Demat account
• Dematerialisation services
• Rematerialisation services
• Transfer between depositories
• Off-market transfers
• Lending and pledging
• Nomination services

These are important and widely used services by investors and traders. The issue is that these services cannot be availed directly from depositories, and a depository participant must be involved. The reason for this is that membership is taken with a depository to ensure that the DP can provide services to every trader and investor. In India, there are two depositories that offer services to everyone:

• Central Depository Services Limited (CDSL)
• National Securities Depository Limited (NSDL)

What is a DP?

A depository participant is an entity that enables investors to open a Demat account and use other services that a depository provides. A DP can be any entity registered with a depository, like:

• Bank
• Non-Banking Financial Company (NBFC)/Financial Institutions
• Stockbroker

Based on the services one might need, they can approach a bank to just open a Demat account or approach a stockbroker if they plan on trading the stock market as well. To provide the various services, a DP charges a specific amount. Among multiple charges, the DP charge is a standard charge noticeable to many investors and traders. So, often, the question arises: what are DP charges, or what do DP charges mean?

DP Charges Meaning

DP charges are the charges collected by the DP to provide to the depository in the form of membership charges and other transactional charges. There are multiple fixed costs that a DP has to bear along with transactional charges, which they pay to the depositories in advance. Hence, a DP generally collects a DP charge from its customers to ensure that they can provide all services without any hiccups.

How Much Is the Depository Participant Charges?

A depository participant has to pay a fixed charge every time securities are sold by an investor. These charges are fixed by the depository and are collected for every transaction.

CDSL

The Central Depository Services Limited has a fixed charge of ₹13 with an additional ₹5.50. This charge is collected every time securities are sold through a DP.

NSDL

The National Securities Depository Limited charges ₹13 plus ₹4.50 for every transaction.

The DP can levy a charge based on what the depository collects and any additional charges as well, including trade stocks, indices, commodities, and currencies with our intraday trading platform.

Example of DP Charges

It can get difficult to understand how the DP charges work, so here’s an example.

Let’s suppose you purchase ten shares of Share India Securities Ltd. The next day, you go ahead and purchase 20 shares of Wipro Limited. There are no DP charges you would have to pay on these purchases. You’d generally spend money excluding any charges apart from brokerage to purchase all the above shares.

DP charges come into play when you choose to sell these shares. Say you choose to sell ten of Wipro Limited shares and hold ten shares. During the sale of these shares, you’ll have to pay brokerage, taxes, and DP charges. DP charges will be mentioned by the broker beforehand, including brokerage, for every transaction. The amount of brokerage can vary, especially if it is percentage-based, but DP charges will tend to stay the same. You’d have to pay brokerage DP charges and other charges when you choose to sell the remaining ten shares of Wipro Limited as well as the ten shares of Share India Securities Ltd.

To summarise, DP charges are levied every time you choose to sell a security. In the above example, as Wipro Limited shares were sold twice, you, as the investors, would have to pay DP charges two times. In case you choose to sell all 20 of them all at once, you’d have to incur DP charges only once. If you choose to sell these shares one at a time, you’d have to shell out DP charges for every single sale of Wipro Limited.

Conclusion

It can be difficult to understand what DP charges are and why they are levied if you fail to comprehend who charges them and why they are collected from every investor. Depository participant charges are fixed, and investors can easily find them before they choose to open an account.

What is a Demat account? It’s not only a secure way to hold your investments but also a gateway to understanding charges like Depository Participant (DP) fees, which are set and transparent, allowing investors to review them before opening an account for informed decision-making.

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