A depository is an institution where your shares are safely stored. In India, the two main depositories are the National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). While your securities are held for safekeeping with the depository, investors cannot directly deal with NSDL and CDSL. Your broker acts as the intermediary or depository participant (DP) and connects you to the depository. They levy a charge for these services. This article discusses everything about them.
What are DP Charges?
Depositories, in collaboration with the depository participant (DP), provide a wide range of services. This includes demat account opening online, the processing of corporate actions, pledging and unpledging of shares, etc. They charge a fee known as “DP charges” in return for carrying out these operations. Charges for DP are only applicable in sell transactions. DP fees are deducted once per scrip every day, regardless of the number of sold shares. Since DP fees are set, they are not based on volume. The DP charge is usually Rs. 13.5 plus 18% GST per stock in a day.
How Do DP Charges Work?
The depository participant asks CDSL or NSDL to release shares of the stock you want to sell. The moment the depository institution releases the stock, and you receive it in your trading account for executing the transaction, a fixed amount gets deducted from your account as DP charges. The DP charges are divided between the CDSL/ NSDL and your stockbroker.
Say you place an order to sell 100 shares of stock A in the morning. Then, you again sell another 100 shares of the same stock in the afternoon, the DP will equate to Rs 13.5 + 18% GST. However, if you order to sell 50 stocks of A in the morning and 50 stocks of B in the afternoon, the DP will equate to Rs 13.5 + Rs 13.5 + 18% GST since multiple scrips are being sold.
DP charges are generally fixed. They are not like brokerage fees or stamp duty, which depend on the value of a transaction. So, it does not matter whether you sell one share or one thousand shares. The charge remains the same.
Why Depository Participants Levy DP Charges?
Even while DP charges increase investor costs, they are necessary for DPs to operate. A DP must register with NSDL and CDSL in order to get a licence before providing services to investors. For this, they pay a hefty sum to CDSL, NSDL, and SEBI (Securities and Exchange Board of India).
For example, a financial institution or stockbroker willing to become a DP needs to pay SEBI fees, an application processing fee, a refundable security deposit, an insurance premium, and registration fees. DP charges assist DPs in recovering the upfront payment for the licence.
Important Things To Know About DP Charges
Here are some of the key points to note about DP charges.
- Instead of being listed in the ledger, DP fees are indicated directly in the contract.
- DP fees are charged once per scrip, even when several stocks are sold at once.
- The government discontinued charging DP fees for mutual fund redemptions from May 3, 2019.
- The DP fees assessed for Buy Today Sell Tomorrow (BTST) securities are similar to those assessed for standard delivery transactions.
DP Charges On BTST Trading
Investors sometimes believe that DP fees do not apply to BTST (Buy Today, Sell Tomorrow) transactions. However, that is not the case. The shares get credited to your account after T+2 days when you place a buy order from your share trading app. When you place a sell order, the shares get debited from your account in T+2 days. For example, assume that you have bought 100 shares of a company on Monday and sold them on Tuesday.
Since the actual credit or debit of shares happens after two days, the shares you bought on Monday will be transferred to your Demat account on Wednesday. Likewise, the shares you sold on Tuesday will be debited from your account on Thursday. You must pay the DP fees since the shares stay in your Demat account for the entire day.
Regardless of how many shares you sell, the DP charges won’t change. Therefore, whether you choose to sell one share or a hundred, the DP charge will be assessed based on the quantity of shares sold. It’s vital to bear in mind that each broker will have their own unique costs in addition to the depository fees.
If you intend to trade in the stock market, it’s crucial to know the fees and costs incurred while trading. Although DP charges are fixed, your stockbroker may lower the transaction charges for your benefit. So, approach renowned firms like Share India, which have quite reasonable trading charges.