Demat Account

By Darpana Sharma

Demat account, short for dematerialized account, is an account required for holding securities in a dematerialized form. In India, a demat account is mandatorily required in order to invest and trade in the Indian Stock Exchnages. Possession of demat account has been made compulsory by SEBI, an abbreviation for the Securities and Exchange Board of India, which is the authoritative and regulatory body for the country’s stock exchanges.

As specified by the SEBI, the demat account is to be opened with a Depository Participant (DP). all the banks and brokers offering depository services are known as DP. However, the contrary is does not hold true.

There are certain charges levied on the customer by a Depository Participant (DP), which holds demat account for its clients, for possessing a demat account. There are four major charges levied on the customer, namely demat account opening fee, annual maintenance charges, brokerage or transaction fee, and custodian fee. In addition to these four, a DP also levies a charge for the conversion of shares from its physical form to the electronic form, or from electronic to physical form. This fee is different for both remat and demat instructions. For dematerialization of securities, some of the DPs levy a fixed charge on every such request along with a fee that varies according to the number of certificates required. The fees levied by other DPs are completely variable.

However, no fee is chargeable on a BO (Beneficiary Owner) by a DP if the BO moves all the securities held in his demat account to the same DP’s some other branch or to the another DP of another or same depository. However, this is applicable only when the BO Account(s) at transferor DP and at transferee DP are same in every respect. If the BO Account at the transferor DP happens to be a joint account, then the BO Account at transferee DP also has to be a joint account, with the identical ownership sequence.

The DPs are allowed to revise their charges. But for that, the DP has to give a notice of 30 days in advance. Other than that, DPs also charge service tax for their clients. Hence, it is always recommended to maintain all your accounts with a single depository participant. This helps in making the tracking of capital gains liability easier. It is because, the determination of holding period varies from DP to DP, hence, affecting the calculation of capital gains tax.

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