Demat Accounts and Everything You Should Know About Opening One
A Demat account is digital securities account with some demat charges that allow you to hold your investments in electronic form instead of paper. Demat accounts are used by individuals and institutional investors, such as banks and brokerages.
Demat accounts are helpful for investors because they don’t require you to hold physical securities. This can be especially beneficial for institutional investors that must keep large amounts of paper documents in safekeeping, as well as individuals who may not have enough space for storing a large number of certificates.
The Benefits of Using Demat Accounts
Demat accounts are a way of keeping your money in an account as a form of investment. They’re also dematerialized accounts, and many people use them worldwide.
Benefits of using Demat accounts
- Demat accounts are safe and secure: The funds are not stored in physical form, so they can’t be stolen or destroyed. They’re held electronically, meaning they can be accessed at any time without worrying about getting access to physical assets.
- Demat accounts offer convenience and security: With a Demat account, you don’t need to worry about opening up an account with a bank or other financial institution or having your identity verified before opening one up. You can simply sign up for one online and start trading immediately!
- They Offer Easy Convenience: You’ll have access to all the benefits of owning shares or bonds in a stock market without having to deal with all the associated risks such as fluctuating prices, high fees, and taxes. You’ll also get tax benefits from owning shares, making them more attractive than bonds over time!
- No Commission Charges: There are no hidden fees associated with trading stocks or shares in your Demat account. There are some demat account opening charges. If you purchase more than Rs 50,000 worth of shares from an exchange-traded fund (ETF), your company will charge a commission of 0.75% plus GST (on top of the index-linked returns). In contrast, if you trade through a demat account, there is no charge for buying or selling ETFs or stocks with the volume of up to Rs 50,000 per day.
Types of Charges for Opening Demat Accounts
The following types of charges are levied on Demat accounts:
Annual Maintenance fee – The annual demat account fees charged by the Bank to maintain the account. This is not a charge imposed on you as an investor but a cost incurred by the bank in maintaining your Demat account.
Custodian Fee –This is a charge levied by your bank for holding securities in inventory. The custodian fee is also known as warehousing and transit charges. The custodian fee payable depends on how many securities you have in your account and how many times you have to transfer them from one place to another.
Transaction Fee –Your bank charges this fee for making any transactions like transferring funds from one account to another or buying/selling securities in your demat account. A minimum amount of Rs 50/- will be charged per transaction irrespective of value transferred or bought/sold. If you buy or sell more than Rs 50,000/- worth of securities, this amount will be calculated at 0% per transaction.
Redemption charges –This is the amount charged by banks to redeem your shares from them. It usually depends on the type of share, whether it is ‘Holder’ or ‘Non-Holder’ and if you have any other securities linked to it.
Postal charges –The RBI mandates banks to charge a certain amount for sending share certificates and other documents to their customers. Most banks charge around Rs 250 per certificate and up to Rs 1000 for big cases like Demat accounts opened with more than 100 shares.
Dematerialization fee –This is the fee charged by banks for converting mutual funds into Demat accounts. The rate varies from bank to bank, but most banks charge around Rs 300 per unit converted.
Also Read: A Quick Guide to Demat Account
Service charge –Banks levy this for keeping your account and transferring money between it. The service charge varies from one bank to another, but it’s generally about 0.1% of the amount transferred or withdrawn.
Cancellation fee –Demat account holders get their money transferred from the bank to their Demat account once a week on a fixed date (usually on Monday). For this purpose, the bank charges a cancellation fee for every week of delay in making such transfers.
On the other hand, you could try going for a free best Demat account to open through a service that allows you to open one.
The Conclusion
So there you have it, a primer on Demat accounts and a simple guideline on how to open one. Hopefully, this and the resources provided will help you make an informed decision about what’s best for your portfolio. It’s a free-to-use service that lets you open free Demat account with no annual charges without paying many of the associated fees that come with it.
