What Are DP Charges? Meaning, Uses, Types

DP charges are the fees imposed on investors or traders for conducting investment or trading activities through a broker. These charges are incurred each time an investor sells the shares they own.

DP Charges Meaning?

When you sell a stock, the broker or depository participant asks CDSL or NSDL to release the stock you want to sell. Once the depository releases the stock and it's ready for sale in your trading account, a fixed amount is deducted from your account as DP charges. These charges are then split between CDSL/NSDL and your broker.

Unlike other fees such as brokerage or stamp duty, DP charges are set at a fixed rate. This means whether you sell one share or a thousand shares, the charge remains the same. Interestingly, these charges don't appear on the contract note sent by your broker; instead, they are added to your account ledger.

Some investors mistakenly believe that BTST (Buy Today Sell Tomorrow) trades are exempt from DP charges, but that's not the case. These charges apply regardless of the type of trade you make.

Who Levies DP Charges?

NSDL and CDSL, and other depository participants in India charge DP fees. You'll pay NSDL a part of the DP charges if you sell a stock on the NSE. When you sell a stock on the Bombay Stock Exchange (BSE), a part of the charges goes to the CDSL. A Depository Participant acts as an intermediary between investors and NSDL/CDSL.

In addition to stock dp charges, investors pay four types of fees to DPs - Demat account opening fees, Annual Maintenance Charges (AMCs), transaction fees, and custodian fees.

Depository-Wise DP Charges

Here are the Depository-wise DP Charges:

National Securities Depository Limited (NSDL)

NSDL is jointly promoted as a depository by the NSE and Unit Trust of India (UTI). The NSDL performs a variety of functions through its Depository Participants, clearing corporations, share transfer agents, and other entities. A Depository Participant is also called NSDL's business partner. 

Customers and clearing corporations can only access DP services if they are members of NSDL. It is only through DPs that you can access the various NSDL services. However, you must first open an account with the DP.

As DP charges, the NSDL charges INR 17.50 (13+4.50) per sell transaction per day.

Central Depository Services India Limited (CDSL)

Public sector banks, as well as the BSE, promote CSDL. DPs act as intermediaries between you and the CSDL. Your account balances are managed and recorded by CSDL using DPs. DPs provide you with account statements at regular intervals with information about your transactions and securities held.

Per sale transaction, CDSL charges INR 18.50 (INR 13+5.50).

Why Do Depository Participants Levy DP Charges?

Even though DP charges are higher for investors, they're necessary for DPs to stay in business. DPs need to register with NSDL and CDSL before offering Demat account opening services to customers. It costs them a lot to pay CDSL, NSDL, and SEBI for this.

Financial institutions or stockbrokers who want to be DPs have to pay SEBI fees, application processing fees, training fees, refundable security deposits, software maintenance fees, insurance premiums, connectivity fees, and internet registration fees. By charging investors, DPs are able to recover the upfront costs of getting their license from SEBI, NSDL, and CDSL.

What Are DP Charges Used For?

Depository Participants impose charges to recover the cost of offering demat services to investors. They offer a range of demat account-related services including the creation and maintenance of demat accounts, processing of transactions, provision of statements, etc. These services come with a price tag that covers a range of costs, including salaries, infrastructure, technology, and regulatory compliance. 

Additionally, Depository Participants make investments in their infrastructure and technology to boost the effectiveness of their demat services. For instance, they might spend money on technologies that enable mobile transactions and online account opening. These investments need a large amount of capital, and DP charges help in recouping these costs.

Different Types Of DP Charges

DP charges are crucial for investors if they want to effectively manage their investments and understand the cost structure of their demat account. It is advisable to read the terms and conditions carefully to understand what are DP charges and other associated fees are before opening a demat account.

1. Account Opening Charges

As the name suggests, account opening charges are imposed by DPs when a new demat account is opened using a demat account app. These fees can be a few hundred to several thousand rupees and vary from DP to DP. The cost of providing account opening services, such as confirming the investor's identity, processing the application, and issuing the demat account number, is usually included in the account opening charges.

2. Account Maintenance Charges

This cost varies from DP to DP and is often imposed annually. The expense of providing services like maintaining the demat account, updating the account holder's information, sending account statements, and offering customer support is covered by the account maintenance fees.

Example

Consider an investor, who maintains their demat account with DP Company X in India. Company X charges an annual account maintenance fee of ₹2000 to cover the costs of services like updating account information, sending account statements, and providing customer support. This fee ensures the smooth functioning of Investor’s demat account throughout the year.

3. Transaction Charges

DPs impose transaction fees for handling transactions in a demat account. For a variety of transactions such as purchasing or selling securities, transferring securities between demat accounts, transnational charges are imposed. 

Example

An Investor, with DP Firm A, conducts transactions. They pay ₹20 for buying 200 shares of Company X and ₹25 for selling 150 shares of Company Y. Transferring 100 shares of Company Z costs ₹15, and buying 300 shares of Company W incurs a fee of ₹30. In total, Investor  pays ₹90 in transaction charges to DP Firm A for these activities.

4. Depository Fees -

The depository, a central organization that keeps securities in electronic form, charges depository fees. The DPs are subject to depository fees, which they then pass along to investors. These fees pay for the maintenance of the communication networks, servers, databases, and other depository infrastructure.

5. Custodian Charges

Custodian charges are imposed by those who keep securities for investors as custodians. Institutional investors including pension funds, insurance firms, and mutual funds employ custodian services. Custodian fees pay for the cost of keeping the securities secure, handling transactions, and giving investors reports.

Example

Let's consider a pension fund, Investor Mr. X, employing the services of Custodian Firm B to safeguard its securities. Custodian Firm B charges a fee of 0.1% annually on the total value of the securities held. If Investor X has securities worth ₹1,000,000, the annual custodian charges would be ₹1,000 (calculated as 0.1% of ₹1,000,000). These charges cover the costs of ensuring the security of the investments, managing transactions, and providing regular reports to Investor X.

6. Charges For Sms And Email Alerts 

DPs charge investors for sending SMS and email alerts for certain demat account-related events. Investors may receive alerts regarding the debit/credit of securities, balance statements, and transaction statements, for instance. These notifications, which are billed either regularly or annually, assist investors in keeping track of their demat account.

Conclusion

DP charges means that depository participants charge investors for the services they provide in maintaining and managing their demat accounts, such as account opening, annual maintenance, transaction fees, and other related expenses. As an investor, it is crucial to have a clear understanding of what the DP charges are and their impact on your investment returns while making investment decisions. 

Investors should also evaluate the charges for multiple DPs before opening a demat account because the charges vary from DP to DP. Now you are aware of why the DP charges are imposed by your depository participants, so plan your investments more efficiently and minimise the expenses associated with maintaining a demat account.