Several different charges apply to many transactions and services in stock trading and investment. Among them are DP charges, which are important for people who buy and sell shares through the demat account. Someone who wants to open a trading account and join the securities market must understand what DP charges are and why they are imposed.
What Are DP Charges?
DP charges are fees charged by the depository participants (DP) when an investor sells shares from a dematerialized account. DP refers to any participating entity that acts as an intermediary between the investor and the central depository. When an investor has some sale activity of shares, the involved depository participant will debit his shares from the demat account and credit the amount to the account of the buyer. DP, for this action, imposes a charge.
Why DP Charges?
The maintenance and running costs of the infrastructure that provides electronic shareholding are what affect such charges. Hence, since the depository participant is imparting a service regarding the storage, updating, and transferring of securities, it is deemed to be necessary for such charges to be incurred for administration and operation.
This charge is per scrip, per day, no matter the number of shares sold. Thus, if an investor were to sell ten shares of one company and five from another company on the same day, the DP would charge separately for each scrip; but if the same 100 shares were sold for a single transaction, the DP charges would remain unchanged, for they are calculated per scrip, not per share.
Elements of DP Charges
DP costs usually consist of two parts:
Depository fees: It is the amount that the national depository will charge from the beneficiary for maintaining and updating records.
DP Fee: This is the charge that the depository participant levies for the service he provides to the investor.
So, the overall DP charge is the combination of these two elements and is usually reflected in the transaction bill generated after the securities are sold.
DP charges and other charges distinct from the charges on account of DP are:
Brokerage charges are charged by the broker while buying or selling shares on behalf of the investor.
Transaction charges are imposed by the exchange for every trade executed on its platform.
The applicable stamp duty and GST are government taxes on trading-related activities.
Such charges are related to the execution of trade; the DP charges deal solely with charges associated with the movement of shares in and out of the demat account.
When Are DP Charges Levied?
DP charges would be applicable on sales only against the debiting of the shares sold from the demat account. No DP charges apply against the purchases made. This means when an individual investor opens a trading account and begins to purchase shares, no DP charges are levied on the credit of shares into his demat account. Charges are levied when shares are sold and need to be debited from the account.
The DP charge is only debited once for the same stock on the same day from the same demat account if the investor sells that single stock counter multiple times. DP charges apply separately for the intraday operations of different stocks.
The Importance of Understanding DP Charges
When a person is opening a trading account, it must be kept in mind what DP charges are and on what basis they are charged. The nature of these charges allows better calculation of investment costs and returns. These charges can have a bearing on the net gain from trade, particularly for individuals who involve themselves in such transactions frequently.
Awareness of all possible costs enables the investor to work out the break-even point as accurately as possible. It also helps in the selection of the right intermediary based on the fair and transparent structure of the charges.
Conclusion
DP charges are indeed a part of trading through a demat account, as they serve as a fee to depository participants for their action in managing and transferring securities. These charges cannot be avoided and only apply when shares are sold. Therefore, any person intending to open a trading account and take on the stock market should have basic knowledge and
