What Charges Are Levied Every Time You Trade?
When a person invests in the securities market, various kinds of charges are imposed during the transaction process. One should know all the charges applicable to invest properly. Of these, trading account charges and DP charges are important.
1. Trading Account Charges
A trading account is necessary to purchase and sell securities in the stock market. It is a platform for the execution of transactions. The trading account incurs the following charges:
2. Account Opening Charges
A one-time payment is charged at the time of opening the trading account. The payment depends on the policies of the service provider.
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3. Annual Maintenance Charges (AMC)
AMC is levied every year for keeping the trading account. This is charged irrespective of trading activity.
4. Brokerage Charges
These are fees charged for selling or buying orders in the market. Brokerage can be a fixed amount or a percentage of the transaction amount. Charges vary depending on the nature of the trade (intraday, delivery, futures, options).
5. Transaction Charges
These are charges charged by the exchange to process trades. The charges are based on the exchange and segment to be traded (equity, derivatives, currency).
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DP Charges for being a Depository Participant
A Demat participant owns securities in a dematerialized manner. DP charges are imposed where securities are being debited in the demat account upon selling a security.
Demat Account Charges
A Demat account must be kept to carry securities in electronic form.
An additional amount of charges must be paid in addition to normal maintenance and account opening charges, if any.
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DP Transaction Charges
These are imposed each time the shares are offered for sale.
Imposed on each scrip (company stock) per day.
Imposed on sell transactions alone, not on buying.
Paid by the broker and received by the depository participant.
What charges are imposed each time you deal?
Each dealing has particular charges. These are
Brokerage
Imposed on both buy and sell instructions.
Either fixed or a percentage of the trade.
Securities Transaction Tax (STT)
Imposed by the government on the value of the transaction.
Applied on both buy and sell trades in the equity segment.
In the case of derivatives, it is applied only on the sell side.
Exchange Transaction Charges
Charged by the stock exchanges for executing trades.
Charged per trade and varies across market segments.
DP Charges
Applied only on sell trades.
Depository charges via the broker.
Stamp Duty
Government levy on the trade.
Charged as a percentage of the trade value.
Varies across states and types of trade.
Goods and Services Tax (GST)
Applied on transaction charges and brokerage.
Presently levied as a fixed percentage.
SEBI Turnover Fees
Imposed by the Securities and Exchange Board of India.
A small fee is a percentage of the transaction value.
Composition of Charges on a Typical Trade
When a trader sells or purchases securities, the following charges form part of the cost structure:
Brokerage as a percentage of trade value and structure
STT on the value of the transaction (depends on the type of trade)
Exchange fee for an exchange as per exchange rules
GST on exchange fees and brokerage
Stamp duty based on the state of residence
SEBI turnover charges
DP charges on sale transactions (per scrip)
Key Reminders Regarding DP Charges
DP charges are not transaction value-based and are fixed.
These charges are levied per ISIN (International Securities Identification Number).
More than one sell transaction of a single stock within the same date incurs just one DP charge.
DP charges are not imposed on buy trades.
Charges are directly withdrawn from the trading account.
Difference Between Trading and DP Charges
Trading charges have something to do with the execution of orders in a stock exchange.
DP charges have something to do with the delivery of securities out of the Demat account when selling.
Both pairs of charges complement each other in each transaction but are levied on different aspects of the process.
Summary
Knowledge of the different charges incurred in trading enables investors to make informed choices. It is important to go through and monitor these charges periodically to determine the actual cost of trading. Clear knowledge of trading accounts and DP charges enables better planning of investment plans and prevents surprise deductions.
