If you have just started investing, it is essential for you to understand the DP charges. Depository Participant (DP) charges are a common type of fee that is applicable at the time of selling securities including stocks, bonds, debentures, or even units of mutual funds.
When an investor sells these securities, both the broker and the Central Depository Services Limited (CDSL) levies this charge. However, these charges are considered a part of the total expenses incurred, which impacts investors’ returns.
This blog makes you understand what DP charges mean, its calculation and the impact of it on trading.
Calculation of DP Charges
When you sell shares by using your demat account, depository participant (DP) charges are levied. Understanding how these charges are calculated when you sell shares is important for every investor.
In this process, your broker serves as the depository participant and acts as an intermediary between you and the depositories such as the Central Depository Services Limited (CDSL) or the National Securities Depository Limited (NSDL). Consequently, both depositories impose a flat fee for each transaction.
While various brokers impose different DP charges, CDSL has introduced a standardized fee structure effective from October 2024, wherein male investors incur a transaction fee of ₹3.50 per transaction, while female investors benefit from a discount of ₹0.25, bringing their transaction fee down to ₹3.25.
How are DP Charges Levied?
Suppose broker X levies a charge of ₹10 per day per stock. You sell 100 shares of XYZ stock in the morning when the market opens, and then you sell 80 more in the afternoon before the market closes.
If you are a male investor, at the end of the day you will be charged:
₹10+₹3.5= ₹13.50+GST
In contrast, if you are a female investor, you will be charged at the end of the day:
₹10+₹3.25= ₹13.25+GST
Similarly, consider you have sold 100 shares of XYZ in the morning and 100 shares of ABC in the afternoon. If you are a male investor, you will be charged at the end of the day:
₹10+₹3.5= ₹13.50+GST for XYZ, and
₹10+₹3.5= ₹13.50+GST for ABC
This is due to the sale of various scripts where you need to pay a total of ₹27 plus GST.
If you are a female investor, when the market hours end, you have to pay:
₹10+₹3.25= ₹13.25+GST for XYZ, and
₹10+₹3.25= ₹13.25+GST for ABC
Therefore, you need to pay a total of ₹26.5 plus GST.
Impact of DP Charges on Trading
It is important to recognise that depository charges significantly impact trading. Let us explore how these charges affect trading by examining various aspects:
- Cost Management: DP charges help to manage costs at the time of financial transactions. As a part of the overall cost of trading securities, investors must consider these charges, because it helps to budget appropriately.
- Maintain Transparency: Maintaining transparency is one of the most crucial aspects of investing, which helps to reduce uncertainty. Investors can make decisions efficiently and value the cost of maintaining security when they have an understanding of how much charges are required to get the services of depository participants.
- Tax Benefits: Since depository charges may include tax implications, investors should know the details of how these charges are treated for tax purposes. If you have enough knowledge of these tax implications, you can assess the tax liabilities with more accuracy. Nevertheless, these are also deductible while calculating capital gains tax.
DP Charges Comparison Across Brokers
Before opening a Demat account of investors, a DP must register itself with CDSL and NSDL. Different brokers have different DP charges, so you need to compare each of them while opening a demat account with a particular broker.
Meanwhile, most brokers in India levy high DP charges including the charge of CDSL. Whereas, Torus Digital levies comparatively lower depository charges on your per-day sell transaction.
Other brokers in the market charge a range of ₹12 to ₹20 per company stock from the investors. But Torus Digital levies only ₹11 + GST per scrip from the investors, irrespective of the number of shares sold from their demat account. To break this, the depository CDSL charges ₹5.5 and the company charges only ₹5.5.
Who Needs to Pay DP Charges?
Any investor who wants to sell stocks from a demat account must pay the Depository Participant (DP) charges at the end of the day. DPs must register with Indian depositories and incur significant expenses to organisations such as NSDL, CDSL, and SEBI. These expenses include training fees, application processing fees, registration fees, connectivity charges, insurance premiums, and other costs.
To recover from these charges, the DP levies these charges from investors, allowing them to recover the upfront money they spent to get the license from the depositories.
Final Thoughts
While investing in stocks, knowing what DP charge is and its calculation is essential. This helps to ensure cost management as well as maintain transparency while trading. Investors have to pay a particular amount in each of their sell transactions for stocks.
To recoup the substantial amounts they pay to depositories, Depository Participants impose these charges on investors. Since different brokers have different DP charges, it is essential for investors to analyse each option before purchasing stocks or opening a demat account.
